The World Bank agreed on a $600 million loan and grant for Ethiopia on Tuesday to pay for roads and other infrastructure in urban areas.
The Washington-based bank said the funds would "help strengthen the capacity and performance of local urban governments, expand sustainable urban infrastructure and services, as well as promote local economic development."
Ethiopia's urban population is growing by 3.8 percent annually on average, one of the fastest rates in sub-Saharan Africa, and that is presenting challenges to infrastructure, services and jobs, the bank said.
"To successfully manage urbanization ... cities are likely to require fiscal transfers for the foreseeable future. This program will help cities to realize their revenue potential," Abebaw Alemayehu, the World Bank's team leader for the project, said in a statement.
The program will also support projects in 73 towns and benefit more than 6.6 million people, he said.
Under a 2015-2020 development plan, Ethiopia plans to set up thousands of "rural development centers" in a bid to ease the influx of people to its capital, Addis Ababa.
Earlier this month, the World Bank also approved a $375 million loan to Ethiopia to fund a national electrification project.