Ethiopia’s external debt remains sustainable, but the risk of external debt distress has increased from “low” to “moderate” due to weak export performance and higher than expected non-concessional borrowing, reflecting faster execution of the government’s investment program. Over the longer term, a recovery in exports and a moderation of non-concessional borrowing would improve external debt indicators. In assessing the risk of external debt distress, the DSA calls for the use of judgment, focusing in particular on capacity to repay. In this regard, the fact that external loans are being used primarily to finance growth-enhancing infrastructure helps reduce the risk of debt distress. However, uncertainties related to foreign demand and foreign financing for investment present downside risks to export growth. Total public sector debt (domestic and external) also remains sustainable, though vulnerable to risks. To enhance debt sustainability, it remains essential to promote the growth and diversification of exports. Ensuring an appropriate pace of public borrowing—especially from external, non-concessional sources—is also critical to ensure that public investment does not undermine debt sustainability. These findings highlight the importance of having a medium-term debt management strategy, and of increasing oversight of state-owned enterprises, which have been in the lead for major infrastructure projects and thus have contracted much of the external, non-concessional debt.