Ethiopia has obtained a $3.4 billion loan from the International Monetary Fund, marking a significant step in its economic reform efforts aimed at addressing foreign currency shortages and attracting foreign investment.
The IMF’s four-year financing package is designed to support Ethiopia’s Homegrown Economic Reform Agenda. The package will help address macroeconomic imbalances, restore external debt sustainability, and create a foundation for more inclusive, private sector-led growth, according to an IMF statement.
The National Bank of Ethiopia recently floated its currency, the birr, which has suffered from a managed foreign exchange rate system. This system had led to persistent dollar shortages that hindered importers and foreign investors from repatriating profits. On Monday, the birr fell 30% to 74.73 per dollar following the central bank’s removal of FX market restrictions and its pledge to limit market interventions.
The IMF’s approval of the loan follows months of negotiations with Prime Minister Abiy Ahmed’s administration. The Ethiopian government has sought more than $10 billion from the IMF and World Bank to manage its increasing debt. The country defaulted on a $33 million international bond payment in December 2023.
Ethiopia’s economy is grappling with double-digit inflation and rising debt repayments, with external debt exceeding $28 billion as of December 2023. The proposed lending program, which originated in 2019, has faced delays due to armed conflicts in the Tigray region and slow economic reforms. Support from the US, IMF, and World Bank was withdrawn during the conflict, exacerbating the economic strain from the COVID-19 pandemic.
The new IMF lending program is a crucial component of Ethiopia’s strategy to stabilize its economy and foster sustainable growth.
