IMF and Ethiopia Reach Key Economic Agreement

Significant Milestone in Ethiopia’s Economic Program

The International Monetary Fund (IMF) has announced a crucial staff-level agreement with Ethiopian authorities regarding economic policies linked to the third review of the Extended Credit Facility (ECF) arrangement. This arrangement, totaling $3.4 billion, aims to address Ethiopia’s economic challenges. Once the agreement receives approval from the IMF Executive Board, Ethiopia will have access to approximately $260 million in financing.

Positive Macroeconomic Developments

Ethiopia’s recent macroeconomic performance demonstrates marked improvement that exceeds prior expectations. Key indicators such as inflation rates, export growth, and international reserves have shown positive trends, leading to better-than-anticipated outcomes. This performance signifies a favorable shift in the country’s economic landscape.

Importance of Sustaining Reform Efforts

Despite these gains, experts stress the ongoing need for reform efforts. Sustaining momentum in reforms is essential for consolidating these recent achievements and addressing imbalances in the economy. The ultimate goal is to restore external debt sustainability and create a robust environment conducive to private sector-led growth. Such efforts are vital to ensure the ongoing success of Ethiopia’s homegrown reform agenda.

Overview of IMF’s Engagement with Ethiopia

A staff team from the IMF, led by Mr. Alvaro Piris, visited Addis Ababa from April 3 to April 17, 2025, to conduct discussions related to the 2025 Article IV consultation and the ECF’s third review. This dialogue continued at the Spring Meetings in Washington, D.C., from April 21 to April 28. The ECF arrangement was initially approved on July 29, 2024, and, subject to the upcoming Executive Board approval, this third review will increase total IMF support under the ECF to around $1.85 billion.

Statement from IMF Staff

In a statement issued following these discussions, Mr. Piris elaborated on the outcomes of the agreement. He highlighted that the policy actions taken by Ethiopian authorities during the first year of the program have produced strong results. Transitioning to a more flexible exchange rate regime has been largely successful, with minimal disruptions observed.

Continued Improvements in Economic Policies

Recent measures aimed at modernizing monetary policy, boosting domestic revenue, and strengthening financial stability are yielding promising results. The indicators for inflation, goods exports, and international reserves show significant improvement compared to forecasts. This performance underscores the effectiveness of Ethiopia’s strategy and commitment to reform.

Addressing Foreign Exchange Market Issues

While the reforms have led to improvements in foreign exchange (FX) availability, challenges remain. A widening spread between the official and parallel exchange rates has been noted in early 2025, highlighting ongoing distortions in the market. Continued policy actions are crucial to enhance transparency, lower transaction costs, and strengthen regulations within the FX market.

The Path Forward for Sustainable Growth

Maintaining the momentum of these reforms is essential for Ethiopia to secure sustainable economic growth. The current tight monetary and financial conditions are necessary to manage inflation and stabilize exchange rate expectations. In addition, further efforts to mobilize domestic revenue will be critical for financing key development projects.

Focus on Business Environment and Investment

Ethiopia’s strategy includes improving the business environment to attract foreign direct investment. Implementing fair taxation practices, fostering open dialogues with the business community, and eliminating elements of financial repression are essential steps towards transforming the capital market. These reforms will aid in mobilizing savings and facilitating efficient capital allocation.

Collaborative Discussions with Ethiopian Officials

The IMF staff expressed gratitude for the productive discussions held with Ethiopian authorities, including Minister of Finance Ahmed Shide and National Bank Governor Mamo Mihretu. Conversations also involved representatives from various sectors, including banking, business, and civil society. This collaborative approach aims to further strengthen Ethiopia’s economic program and ensure its success.

This agreement marks a significant step towards addressing the economic challenges facing Ethiopia and highlights the positive trajectory of its economic policies. The cooperative efforts between the IMF and Ethiopian authorities are vital for achieving sustained growth and stability in the nation.