The International Monetary Fund (IMF) Executive Board has approved US$3.4 billion under the Extended Credit Facility (ECF) for Ethiopia, following 5 years of negotiations.
- According to a statement by the IMF, the four year program enables an immediate disbursement of about US$1 billion and subsequent disbursements in the review period expected to help Ethiopia meet its balance of payments needs and provide support to the budget.
- Just a day after Ethiopia floating its currency, the four-year financing package seeks to support the authorities’ Homegrown Economic Reform (HGER) Agenda to address macroeconomic imbalances, restore external debt sustainability, and lay the foundations for higher, inclusive, and private sector-led growth.
- Ethiopia’s economic program, supported by the four-year ECF arrangement, envisages a comprehensive policy package to stimulate private sector activity and increase economic openness to promote higher and more inclusive growth.
“This is a landmark moment for Ethiopia,” said IMF Managing Director Kristalina Georgieva. “The approval of the ECF is a testament to Ethiopia’s strong commitment to transformative reforms. The IMF looks forward to supporting these efforts to help make the economy more vibrant, stable, and inclusive for all Ethiopians.”
Key policies adopted by Ethiopia include moving to a market-determined exchange rate to help address external imbalances and relieve FX shortages, combating inflation through modernizing the monetary policy framework, eliminating monetary financing of the budget, and reducing financial repression, creating space for priority public spending through mobilizing domestic revenues, restoring debt sustainability and strengthening the financial position of state-owned enterprises to tackle critical macro-financial vulnerabilities.
The program is expected to help catalyze additional external financing from development partners and provide a framework for the successful completion of the ongoing debt restructuring.
After decades of rapid growth and improvements in living standards in Ethiopia, a series of shocks led to severe economic pressures, and the public investment-led growth model has reached its limits.
Following the urgent need for reform, Ethiopia requested a four-year arrangement under the ECF with the Fund to help meet balance of payments needs and provide support to the budget and the implementation of the Homegrown Economic Reform Agenda (HGER).
In 2019, the IMF board approved a US$ 2.9 billion three year arrangement for Ethiopia under the Extended Credit Facility. However, the programme was suspended shortly after following a two-year war in the Northern region of Tigray. In November 2022, the program took off after a peace agreement.
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