Ethiopia has secured a $3.4 billion loan from the IMF after floating its currency as part of the reforms to ease the country’s foreign currency shortages and attract foreign investments.
“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,” IMF said in a statement.
The National Bank of Ethiopia has maintained a managed FX rate system, causing chronic dollar shortages that have affected importers and foreign investors repatriating profits.
On Monday, the birr slumped 30% to 74.73 per dollar after the central bank removed restrictions on the FX market and committed that the regulator would only make “limited interventions.”
Conditions attached to the IMF financing include adopting an interest-based monetary policy to maintain low inflation and fiscal reforms in government to boost revenue collections.
IMF’s approval follows months of negotiations with Prime Minister Abiy Ahmed’s administration which wants to borrow more than $10 billion from the IMF and World Bank to help the country manage its growing debt. The East African nation defaulted on a $33 million international bond payment in December 2023.
The Ethiopian economy has been under pressure from double-digit inflation and growing debt repayments. It had over $28 billion in external debt as of December 2023.
The new lending programme, proposed in 2019, has suffered several delays due to armed conflicts in the country’s Tigray region and Ahmed’s slow pace of economic reforms. The US, IMF and the World Bank withdrew their support during the war, battering an economy that was already reeling from the impact of the COVID-19 pandemic.
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