As reported earlier, Ethiopia floated its currency to secure a $10 billion loan from the IMF and World Bank, and make progress on a long-delayed debt restructuring. The National Bank of Ethiopia said on its website that banks may now purchase and sell foreign currency at freely negotiated exchange rates.
In response, the IMF, via its website, revealed that its board authorized an SDR 2.556 billion (about US$3.4 billion) ECF arrangement for Ethiopia. According to the global lender, this decision allows for an immediate release of SDR 766.75 million (about $1 billion).
“The four-year financing package will 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,” the IMF stated.
“The ECF arrangement is expected to catalyze additional external financing from development partners and creditors,” it added.
According to the Commercial Bank of Ethiopia, the country has used a controlled floating exchange rate regime, resulting in a scarcity of dollars required for imports and profit repatriation by foreign investors.
As described by the IMF, the authorities’ economic agenda, which is backed by the four-year ECF agreement, requires an extensive policy program that will stimulate private sector activity and broaden economic transparency in order to foster a more substantial and inclusive growth.
To this effect, the key policies are:
- 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, including through securing timely debt restructuring agreements with external creditors.
- Strengthening the financial position of state-owned enterprises to tackle critical macro-financial vulnerabilities.
“This is a landmark moment for Ethiopia,” Kristalina Georgieva, the Managing Director of the IMF stated.
“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.”
Via this program, it is expected that the East African country would be able to attract external financing from development partners.
