Addis Ababa: The Executive Board of the International Monetary Fund (IMF) has approved an immediate disbursement of about 248 million U.S. dollars to Ethiopia to help the East African country meet its balance of payments needs.
The decision came after the IMF held its second review of the 48-month Extended Credit Facility (ECF) for Ethiopia, according to an IMF statement, the state-run Ethiopian News Agency reported Saturday. The disbursement is a part of Ethiopia’s ECF arrangement for a total of about 3.4 billion U.S. dollars, which was approved in late July last year, Xinhua news agency reported.
The four-year financing package intends to support Ethiopia’s Homegrown Economic Reform Agenda with the aim of addressing macroeconomic imbalances, restoring external debt sustainability, and laying the foundations for higher, inclusive, and private sector-led growth.
The statement noted that the country’s foreign exchange market functioning has improved amid significant policy actions taken by the government. Progress in raising domestic fiscal revenues, strengthening state-owned enterprises, and anchoring financial stability is promising, while the modernisation of the country’s monetary policy framework is advancing.
The IMF’s statement also stressed the need for Ethiopian authorities to continue their efforts to restore debt sustainability, expand social safety nets, and mitigate the impact of the reform on vulnerable people.
Progress On Key Reforms
Foreign Exchange Market:
The authorities have implemented significant policy actions to enhance market efficiency and narrow the parallel market premium to single digits. Restricting the NBE’s foreign exchange interventions and moving toward a more flexible exchange rate regime are helping improve transparency and stability.
Monetary Policy:
Tight monetary and financial conditions have been maintained to tackle inflationary pressures and reduce macroeconomic imbalances. Reaching a positive real interest rate is a key goal to anchor inflation expectations and support credibility in the new monetary policy framework.
Fiscal Policy:
A supplementary budget approved in late November 2024 remains consistent with program targets. Ongoing efforts to expand the Productive Safety Net Program (PSNP) will protect vulnerable households, while measures like fuel price adjustments and VAT/excise tax reforms aim to bolster domestic revenue, thereby creating room for social and development spending.
Financial Sector Stability:
Modernizing bank regulations, strengthening supervision, and closely monitoring non-performing loans are central to safeguarding financial stability. The authorities plan to remove the credit growth cap and adjust policy rates in a carefully sequenced manner to maintain orderly market conditions.
Debt Sustainability:
Ethiopia is pursuing a debt treatment under the G20 Common Framework, and negotiations have progressed with the Official Creditor Committee. Additional discussions with Eurobond holders and other external commercial creditors are underway to secure comparability of treatment. The IMF welcomes these efforts as critical steps toward restoring debt sustainability.
