IMF Executive Board Approves Four-Year, $3.4 Billion Extended Fund Agreement for Ethiopia
July 29, 2024
The IMF Executive Board approved an ECF arrangement for SDR 2.556 billion (about US$3.4 billion) for Ethiopia. The decision allows for immediate disbursement of the equivalent of SDR 766.75 million (about US$1 billion). The four-year financing package supports the authorities’ Home-Growth Economic Reform (HGER) agenda to address macroeconomic imbalances, restore external debt sustainability, and lay the foundation for more inclusive, private-sector-led growth. The ECF arrangement is expected to facilitate additional external financing from development partners and creditors.
WASHINGTON DC: The Executive Board of the International Monetary Fund (IMF) has approved a four-year arrangement under the Extended Credit Facility (ECF).[1] Provide assistance equivalent to SDR 2.556 billion (850 percent of the allocation, or approximately U.S. $3.4 billion) to Ethiopia to help implement its Haitian Governance and Reform (HGER) agenda, which aims to address macroeconomic imbalances and lay the foundations for private-sector-led growth. The Executive Board’s decision also makes SDR 766.75 million (approximately U.S. $1 billion) available for immediate disbursements to help meet Ethiopia’s balance of payments needs and budget support.
The authorities’ economic program, supported by a four-year ECF arrangement, envisages a comprehensive policy package to stimulate private sector activity and enhance economic openness to promote higher and more inclusive growth. Strengthening the social safety net to mitigate the impact of reforms on vulnerable households is a key element of the authorities’ reform program. Key policies include (i) moving to a market-determined exchange rate to address external imbalances and alleviate foreign exchange shortages; (ii) fighting inflation through modernizing the monetary policy framework, de-monetizing the budget, and reducing financial repression; (iii) creating space for priority public spending through domestic revenue mobilization; (iv) restoring debt sustainability, including through securing timely debt restructuring agreements with external creditors; and (v) strengthening the financial position of state-owned enterprises to address significant macro-financial vulnerabilities.
“This is a landmark moment for Ethiopia,” said IMF Managing Director Kristalina Georgieva. “The ECF approval is a testament to Ethiopia’s strong commitment to transformational reforms. The IMF looks forward to supporting Ethiopia’s efforts to make its economy more vibrant, stable, and inclusive for all Ethiopians.”
The program is expected to facilitate additional external financing from development partners and provide a framework for the successful completion of ongoing debt restructurings.
Following the Board discussion, Deputy Managing Director and Acting Chair Antoinette Saeh said:
“Ethiopia faces significant economic pressures amid a series of major shocks, high inflation, low foreign exchange reserves and unsustainable debt. In response, the authorities have launched a comprehensive reform program supported by the ECF Agreement, which focuses on implementing broad-based reforms to address macroeconomic imbalances, restore external debt sustainability and promote a strong, inclusive and sustainable economy.”
“Recent steps to decisively address macroeconomic imbalances, including moving to a market-determined exchange rate, removing current account restrictions, and modernizing the monetary policy framework to contain inflation, are important steps forward. Supportive macroeconomic policies, including the elimination of monetary financing of government deficits, tightening monetary policy, and prudent fiscal management, will need to continue to contain inflation, successfully implement a market-determined exchange rate, and address the exchange rate shortfall permanently.”
“The authorities’ policies are appropriately tailored to protect vulnerable groups and cushion the socio-economic impact of the reforms. Budget allocations for the Targeted Cash Transfer Programme (PSNP) will increase significantly. Temporary subsidies on fuel and fertiliser are also part of the fiscal package and should be gradually phased out over time. It is critical that we continue to expand the reach and impact of social safety net programmes.”
“The authorities are pursuing reforms to ensure the sustainability of public finances. In this regard, it is crucial to increase fiscal revenues and achieve a comprehensive external debt settlement, including under the G20 Common Framework. Through the first use of the Credible Official Creditor Process based on recent IMF policy reforms, the Official Creditors Committee under the G20 Common Framework has succeeded in providing loan guarantees for this ECF-supported program in a short period of time.
“Strengthening public investment management, including spending related to climate change and post-conflict reconstruction, is also important. There is a need for greater transparency and management of fiscal risks, particularly related to the off-budget sector and large state-owned enterprises. Power sector reform, including tariff adjustments, is also essential.”
“The recent recapitalization of Ethiopian commercial banks addresses significant macro-financial vulnerabilities. Reforms to improve financial sector governance and steadily reduce financial repression will be essential. Strengthening the mandate and governance structure of the NBE will help build its credibility and mandate.”
“The authorities’ ambitious and comprehensive home-grown structural reform plan will focus on better governance and public service delivery, competitiveness and business environment, stimulating private-sector led growth and contributing to poverty reduction and improved living standards.”
“The IMF offers its deepest condolences to the Ethiopian people following the recent landslides in the Gofa region of southern Ethiopia that have caused tragic loss of life, and wishes the authorities well in their response and recovery efforts.”
Annex
Ethiopia had experienced decades of rapid growth and improving living standards, but a series of shocks had created severe economic pressures that pushed the public investment-led growth model to its limits. The authorities recognized the need for urgent reforms and requested a four-year arrangement with the IMF under the ECF to meet balance of payments needs and support the implementation of the budget and Homeland Economic Reform Agenda (HGER).
Program Overview
The economic plan envisages a comprehensive policy package to stimulate private sector activity and increase economic openness to promote higher and more inclusive growth. Strengthening the social safety net to mitigate the impact of reforms on vulnerable households is a key element of the authorities’ reform plan. Key policies include:
Move to a market-determined exchange rate to resolve external imbalances and alleviate foreign exchange shortages. Fight inflation by modernizing the monetary policy framework, eliminating budgetary monetary resources, and reducing financial repression. Create space for priority public spending and address debt vulnerabilities through domestic revenue mobilization. Restore debt sustainability, including by securing timely debt restructuring agreements with external creditors. Strengthen the financial position of state-owned enterprises to address significant macro-financial vulnerabilities.
Ethiopia: Key economic indicators, 2021/22-2028/29
2021/22
2022/23
2023/24
2024/25
2025/26
2026/27
2027/28
2028/29
project
project
project
project
project
project
output
Real GDP growth rate (%)
6.4
7.2
6.1
6.5
7.1
7.7
8.0
7.8
price
Inflation Rate – Average (%)
33.9
32.5
26.9
30.1
16.2
12.2
10.4
9.6
General Government Finances
Revenue (% of GDP)
8.1
7.9
7.3
8.3
9.8
10.8
11.2
11.4
Expenditures (% of GDP)
12.7
10.8
9.4
11.3
12.4
13.3
13.6
13.9
Fiscal balance including subsidies (% of GDP)
-4.2
-2.6
-1.7
-1.7
-2.1
-2.0
-2.0
-2.0
Public debt (% of GDP)1
48.9
40.2
34.4
42.9
38.8
35.8
33.6
31.5
Money and credit
Broad Money (Rate of Change)
27.2
26.6
14.4
30.3
25.1
26.6
23.5
21.7
Lending to the private sector and state-owned enterprises (percentage change)
18.9
24.1
12.0
21.2
25.5
31.3
20.1
18.2
Balance of payments
Current account balance (% of GDP)
-4.0
-2.8
-2.6
-4.3
-3.2
-2.5
-2.0
-1.9
Foreign direct investment (% of GDP)
2.6
2.1
1.6
2.7
3.2
2.9
3.0
3.0
Reserve (import months)
0.8
0.5
0.5
1.2
2.0
2.5
3.5
3.6
External debt (% of GDP)
24.0
18.1
15.4
28.3
26.6
24.5
22.6
19.8
exchange rate
Real effective exchange rate (% change, end of period, depreciation –)
10.1
24.0
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1/ Public and officially guaranteed external debt. This includes the long-term external debt of the NBE and the external debt of Ethio-Telecom. Does not include anticipated debt relief.
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[1] The Extended Credit Facility (ECF) provides medium-term financial support to low-income countries (LICs) with protracted balance of payments problems. The ECF is one of the facilities under the Poverty Reduction and Growth Trust (PRGT). https://www.imf.org/en/About/Factsheets/Sheets/2023/Extended-Credit-Facility-ECF
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