The International Monetary Fund (IMF) has reached a significant milestone with Ethiopia, concluding a staff-level agreement on the second review of the four-year Extended Credit Facility (ECF) arrangement. This agreement underscores the progress Ethiopia is making in its homegrown economic reform program, signaling hope for continued growth and stability.
A Strategic Partnership for Economic Reform
In July 2024, the IMF approved a $3.4 billion ECF arrangement to support Ethiopia’s ambitious economic reform program. Now, with the second review nearing formal approval, Ethiopia is set to access an additional $251 million. These funds are expected to bolster ongoing efforts to stabilize the economy and create a conducive environment for sustainable growth.
IMF staff, led by Mr. Álvaro Piris, conducted extensive discussions with Ethiopian officials, including Finance Minister Ahmed Shide and National Bank Governor Mamo Mihretu, during a mission from November 12 to 26, 2024. The delegation also engaged with key stakeholders from the banking and business sectors to assess the progress and priorities of Ethiopia’s economic program.
Key Achievements and Progress
One of the standout successes of Ethiopia’s reform program is the transition to a market-determined exchange rate. This policy shift has played a pivotal role in easing foreign exchange shortages, a persistent challenge for the Ethiopian economy. The narrowing of spreads between official and parallel exchange rates—now below 10%—highlights the positive impact of these reforms.
Other achievements include:
Eased FX Surrender Requirements: Businesses are now experiencing more flexibility, leading to improved currency liquidity.
Nascent Interbank FX Market: Increased activity in this market is promoting transparency and efficiency in currency exchange.
Launch of a Domestic Interbank Money Market: A critical step in modernizing Ethiopia’s financial infrastructure.
Promising Economic Outlook
With macroeconomic stability supported by prudent policy measures, Ethiopia is poised for growth. The recently approved supplementary budget by the Council of Ministers aims to address tight liquidity conditions while maintaining fiscal discipline. Additionally, Ethiopia is transitioning to interest rate-based monetary policy, ensuring inflation remains under control.
The IMF emphasized that tight monetary and financial conditions are crucial during this transition to secure long-term economic stability.
Gratitude and Collaboration
Mr. Piris expressed the IMF’s gratitude for the Ethiopian authorities’ dedication and proactive measures in implementing the economic program. He also commended the constructive dialogue with Ethiopian officials and stakeholders, which has been instrumental in advancing the reform agenda.
The next steps involve the approval of the agreement by the IMF management and Executive Board in the coming weeks. Future reviews of the ECF arrangement will occur every six months, ensuring that Ethiopia’s progress remains on track.
As Ethiopia continues its journey of economic transformation, the collaboration with the IMF serves as a testament to the country’s commitment to reform and resilience. With improved foreign exchange conditions, controlled inflation, and a clear focus on sustainable growth, Ethiopia is setting a strong foundation for a more prosperous future.
