IMF Greenlights Immediate Release of $248 Million to Ethiopia
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Synopsis
The IMF has approved the immediate release of approximately $248 million to Ethiopia to address its balance of payments needs, following a review of the country's Extended Credit Facility. This funding is part of a larger $3.4 billion arrangement aimed at supporting Ethiopia's economic reforms and enhancing financial stability.
Key Takeaways
- IMF disburses $248 million to Ethiopia.
- Funding aids balance of payments needs.
- Part of a $3.4 billion ECF arrangement.
- Supports Homegrown Economic Reform Agenda.
- Focus on restoring debt sustainability.
Addis Ababa, Jan 19 (NationPress) The Executive Board of the International Monetary Fund (IMF) has sanctioned an immediate release of approximately 248 million U.S. dollars to Ethiopia to assist the East African nation in addressing its balance of payments requirements.
This decision followed the IMF's second assessment of the 48-month Extended Credit Facility (ECF) for Ethiopia, as reported by the state-run Ethiopian News Agency on Saturday.
The disbursement is part of Ethiopia's broader ECF agreement totaling nearly 3.4 billion U.S. dollars, which received approval in late July of the previous year, as noted by Xinhua.
The four-year financing initiative is designed to bolster Ethiopia's Homegrown Economic Reform Agenda, aimed at rectifying macroeconomic imbalances, reinstating external debt sustainability, and establishing a foundation for enhanced, inclusive, and private sector-led growth.
The statement indicated that the functioning of the country's foreign exchange market has shown improvement, thanks to substantial policy measures adopted by the government. Encouraging progress in increasing domestic fiscal revenues, fortifying state-owned enterprises, and securing financial stability is evident, while advancements in modernizing the country's monetary policy framework are ongoing.
The IMF's announcement also highlighted the necessity for Ethiopian officials to persist in their endeavors to restore debt sustainability, broaden social safety nets, and alleviate the impact of reforms on vulnerable populations.
Progress on Key Reforms
Foreign Exchange Market: Authorities have executed significant policy measures to enhance market efficiency and reduce the parallel market premium to single digits. Limiting the NBE’s foreign exchange interventions and transitioning towards a more flexible exchange rate system are crucial for improving transparency and stability.
Monetary Policy: Sustained tight monetary and financial conditions are being enforced to combat inflationary pressures and diminish macroeconomic imbalances. Achieving a positive real interest rate is vital to anchor inflation expectations and uphold credibility in the new monetary policy framework.
Fiscal Policy: A supplementary budget sanctioned in late November 2024 aligns with program objectives. Ongoing initiatives to expand the Productive Safety Net Program (PSNP) aim to protect vulnerable households, while strategies such as fuel price adjustments and VAT/excise tax reforms seek to enhance domestic revenue, thus creating space for social and developmental expenditures.
Financial Sector Stability: The modernization of banking regulations, enhancement of supervision, and close monitoring of non-performing loans are essential for safeguarding financial stability. Authorities intend to eliminate the credit growth cap and adjust policy rates in a carefully sequenced manner to sustain orderly market conditions.
Debt Sustainability: Ethiopia is working towards a debt treatment under the G20 Common Framework, with negotiations progressing with the Official Creditor Committee. Additional talks with Eurobond holders and other external commercial creditors are also in progress to ensure comparability of treatment. The IMF considers these efforts as critical steps towards restoring debt sustainability.
