The World Bank agreed a $600 million loan and grant to Ethiopia on Tuesday to fund roads and other infrastructure projects 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 presenting challenges to infrastructure, services and jobs, the bank said.
"To successfully manage urbanisation ... cities are likely to require fiscal transfers for the foreseeable future. This programme will help cities to realise their revenue potential," Abebaw Alemayehu, the World Bank's team leader for the project, said in a statement.
The programme will also support projects in 73 towns across the country and benefit more than 6.6 million people, he said.
Under a 2015-2020 development plan, Ethiopia plans to set up less than 10,000 "rural development centres" 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.