The International Monetary Fund (IMF) has completed the second review of Ethiopia’s Extended Credit Facility (ECF) arrangement, unlocking $248 million (SDR 191.7 million) to support the country’s balance of payments. This milestone is part of a broader $10.7 billion financial support package coordinated with development partners and creditors to aid Ethiopia’s economic reform agenda.
The ECF arrangement, initially approved in July 2024 for a total of SDR 2.556 billion (approximately $3.4 billion), aims to address Ethiopia’s macroeconomic challenges and promote private-sector-driven growth under the country’s Homegrown Economic Reform Agenda (HGER). With the second review completed, total disbursements under the program have reached $1.611 billion.
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Reform Progress and Achievements
Ethiopia has demonstrated strong commitment to its reform objectives, meeting all quantitative performance criteria outlined in the program. However, the government’s contribution to targeted social safety nets fell short, primarily due to preparatory work required to expand these programs. Progress in structural benchmarks is ongoing, with a key milestone—the finalization of the National Bank of Ethiopia’s audited accounts—reset to March 2025 to ensure comprehensive completion.
The country’s foreign exchange market has shown marked improvement, bolstered by policy measures that enhance efficiency. A shift to a more flexible exchange rate regime has significantly narrowed the parallel market premium to single digits, reflecting increased foreign exchange availability.
Focus on Fiscal and Monetary Stability
Ethiopia’s fiscal and monetary policies remain aligned with the program’s objectives. Tight monetary policy and efforts to avoid central bank financing of government deficits have been pivotal in reducing imbalances and stabilizing the economy. The IMF emphasized the importance of achieving a positive real monetary policy rate to curb inflation and shape expectations regarding exchange rate stability.
The supplementary budget approved in November 2024 maintains fiscal discipline while prioritizing critical social safety net programs to protect vulnerable households from the impacts of ongoing reforms. Efforts to mobilize domestic revenues, including the implementation of value-added tax (VAT) and excise tax reforms, remain crucial to creating fiscal space for development needs.
Advancing Financial and Debt Reforms
Significant progress has been made in modernizing Ethiopia’s financial sector, including a new legal framework for the National Bank of Ethiopia. While this represents a major step forward, the IMF urged further enhancements to ensure the bank’s autonomy and governance.
The Ethiopian government is also advancing efforts to restore debt sustainability. Negotiations under the G20 Common Framework have yielded substantial progress, with an agreement on a Memorandum of Understanding expected by the third program review. Comparable treatment agreements with Eurobond holders and other commercial creditors are also underway.
IMF Statement on Ethiopia’s Economic Reform
Nigel Clarke, Deputy Managing Director and Chairman of the IMF Board, commended Ethiopia’s progress:
“The authorities continue to make strong strides in implementing their Fund-supported program and addressing macroeconomic imbalances. Prudent monetary and fiscal policies, alongside sustained reforms, are essential for ensuring long-term stability and growth.”
Clarke emphasized the importance of strengthening Ethiopia’s financial sector, advancing structural reforms, and accelerating efforts to expand social safety nets to mitigate the impact of reforms on vulnerable populations.
As Ethiopia progresses with its ambitious reform agenda, the IMF’s ongoing support underscores the international community’s confidence in the country’s commitment to sustainable and inclusive growth.
