By Samuel Gebre and Simon Marks
May 24, 2021, 7:31 AM – Updated on May 24, 2021, 12:32 PM
Word Count: 586

Visas to government and military officials from Ethiopia and its neighbor Eritrea, which is also involved in the violence in Tigray, will be restricted, U.S. Secretary of State Antony Blinken said in a statement. The action sets back relations between two longtime allies in the fight against Islamist extremism in the Horn of Africa.

The U.S. sanctions will mainly affect financing to support Ethiopia’s budget, and will include a request that the World Bank and the International Monetary Fund withhold funding, people familiar with the matter said on Saturday. Ethiopia, led by Prime Minister Abiy Ahmed, is the biggest recipient in Africa of U.S. foreign aid, receiving about $1 billion last year.

The U.S. “has deepening concerns about the ongoing crisis in Ethiopia’s Tigray region,” Blinken said in the statement. “Despite significant diplomatic engagement, the parties to the conflict in Tigray have taken no meaningful steps to end hostilities or pursue a peaceful resolution of the political crisis.”

The premium investors demand to hold Ethiopia’s dollar bonds rather than U.S. Treasuries climbed 28 basis points to 806 on Monday, the highest among African sovereigns except Mozambique and Zambia. The average risk premium for emerging markets narrowed.

The penalties are over Abiy’s handling of the war in the Tigray and the involvement of troops from neighboring Eritrea. Earlier this month, Blinken expressed concern about increasing obstacles to humanitarian aid in Tigray and criticized both the Ethiopian and Eritrean authorities for failing to honor pledges to withdraw their forces.

Read more: U.S. Weighs Financial Sanctions Against Ethiopia Over Tigray War

Abiy won the Nobel Peace Prize two years ago for ending a protracted conflict with neighboring Eritrea.

Violence engulfed Tigray in November, when Abiy ordered an incursion after forces loyal to the state’s dissident ruling party attacked a federal military camp in the region. The descent into violence followed months of tensions between federal and regional authorities.

The U.S. measures follow a decision in March by the European Union to impose sanctions on Eritrea’s National Security Agency, citing alleged human-rights violations. A further list of more targeted sanctions aimed at Ethiopia is also being considered in Brussels, two diplomats with knowledge of the matter said.

Read more: Why Ethiopia’s Nobel Peace Prize Winner Is Waging War: QuickTake

Ethiopia signed a $907 million funding agreement with the World Bank last month. In February, the government and the IMF reached a staff level agreement for the first and second review of extended credit facilities.

The IMF’s board is awaiting “financing assurances from creditors for a debt treatment” that is required before the reviews are presented to the fund’s executive board for approval, an IMF official said in an emailed response to questions.

The World Bank on Monday reiterated a statement it made in March, when it said it “does not have the mandate to get involved in the internal governance issues of its member states. However, human rights principles are prominently embedded in our Environmental and Social Framework.”

–With assistance from Robert Brand.