The International Monetary Fund (IMF) will disburse $248 million to Ethiopia, following Executive Board approval after a second successful review of the country’s economic performance.
The review in under the 48-month Extended Credit Facility (ECF) means that Ethiopia will draw the equivalent of 191.7 million worth of Special Drawing Rights (SDRs).
The latest payout brings the total disbursements to Addis Ababa under the ECF arrangement to about $1.61 billion.
“The Board’s decision allows for an immediate disbursement of about $248 million (SDR 191.7 million), which will help Ethiopia meet its balance of payments needs. The completion of the review brings total disbursements under the arrangement to about $1.611 billion,” the fund said in a statement dated January 17, 2025.
Ethiopia’s ECF arrangement for a total of SDR 2.556 billion or about $3.4 billion at the time of programme approval on July 29, 2024, is aimed at supporting the authorities’ Homegrown Economic Reform Agenda (HGER) to address macroeconomic imbalances and lay the foundation for private sector-led growth.
According to the IMF, Ethiopia has met all the quantitative performance criteria and the functioning of the foreign exchange market has continued to improve as the authorities have taken significant policy measures to strengthen market efficiency.
“National Bank of Ethiopia (NBE) has maintained tight monetary and financial conditions, and modernisation of the monetary policy framework is advancing,” said IMF.
“Progress in raising domestic fiscal revenues, strengthening state-owned enterprises, and anchoring financial stability is promising, with continued commitment needed to sustain the achievements thus far. Expanding social safety nets is critical to mitigating the impact of reforms on vulnerable people.”
IMF, however, noted that the structural benchmark on finalising the audited accounts of the central bank has been reset from end of January 2025 to end of March 2025 to allow time for completion.
“The authorities continue their efforts to restore debt sustainability and are taking steps to secure a debt treatment. The progress made on debt restructuring negotiations under the Common Framework is welcome,” the fund said.
Ethiopia is fighting to emerge from macroeconomic headwinds of high inflation, mounting debt and foreign currency shortages that discourage foreign investment in Africa's second most populous economy.
Prime Minister Abiy Ahmed has been working to open up the Ethiopian economy to foreign investment after decades of a state-controlled regime.
In late July this year, the NBE began implementing an IMF-backed flexible exchange rate policy as part of new measures to stabilise the economy.
Under the new regime, commercial banks are allowed, for the first time, to set prices for foreign exchange, while non-bank entities can operate forex bureaus after decades of a fixed exchange rate regime in which the government set prices for foreign currencies.
Dr Abiy’s administration had been facing mounting pressure from the World Bank and the IMF to float the country’s currency and implement critical reforms in the forex market in exchange for funding.
“The authorities continue to make strong progress in implementing their Fund-supported programme and addressing macroeconomic imbalances,” said Nigel Clarke, IMF deputy managing director.
“The transition to a flexible exchange rate has advanced further, supported by macroeconomic and foreign exchange market policy measures, and the parallel market premium has stabilised in single digits with rising FX supply.”
According to Mr Clarke continuing to restrict NBE’s forex interventions and additional policy measures to support the foreign exchange market development will be critical to enhance market efficiency and deepening.
“Prudent macroeconomic policies, including continued tight monetary policy and avoiding monetary financing of government deficits are essential to reducing imbalances and ensuring macroeconomic stability,” he said.
“Continued implementation of financial sector reforms, including modernising the bank regulation framework, strengthening bank supervision, and monitoring non-performing loans, will support financial sector stability.”
According to IMF, achieving a positive real monetary policy rate is a key step in building the credibility of Ethiopia’s new monetary policy framework and changing market expectations for inflation and the exchange rate.
“The authorities should also carefully sequence removal of the credit growth cap along with policy rate changes and clearly communicate policy intentions. Close supervision and enforcement of net open position regulations for banks will help address financial sector vulnerabilities,” said Mr Clarke.