The International Monetary Fund (IMF) has completed the second review of Ethiopia’s $3.4 billion Extended Credit Facility (ECF) arrangement, approving an immediate disbursement of approximately $248 million. This decision, announced on January 17, 2025, raises the total disbursements under the program to $1.611 billion.
In its statement, the IMF noted that while the implementation of ECF-supported reforms is progressing well, challenges remain. These include a “lower-than-targeted contribution” to social safety nets due to delays in expanding programs and utilizing the increased budgetary envelope.
The IMF confirmed that all quantitative performance criteria were met, though some structural reforms experienced delays. Notably, the deadline for auditing the National Bank of Ethiopia’s accounts has been extended to March 2025.
Reform Program Advancing
Ethiopia’s $3.4 billion loan package is part of a broader macroeconomic reform program initiated in late July 2024. A key feature of the reforms includes transitioning from a crawling peg exchange rate system to a market-based foreign currency regime.
According to Central Bank Governor Mamo Mihretu, the reforms aim to help Ethiopia secure $10.7 billion in external financing from the IMF, World Bank, and other creditors.
“The transition to a flexible exchange rate has advanced further,” stated IMF Deputy Managing Director Nigel Clarke. He highlighted measures that have stabilized the parallel market premium to single digits, supported by an increased foreign exchange supply.
Emphasis on Stability
Despite the progress, Clarke emphasized the importance of maintaining a “tight monetary policy” and implementing further measures to enhance market efficiency. Restricting foreign exchange interventions by the National Bank of Ethiopia and carefully sequencing the removal of credit growth caps with policy rate adjustments are critical steps toward achieving stability, the IMF noted.
Debt Restructuring Progress
Ethiopia’s debt restructuring efforts also received recognition. Clarke highlighted the “substantial progress made towards a debt treatment” under the G20 Common Framework, describing it as a crucial step in restoring debt sustainability. He added that a Memorandum of Understanding with official creditors is expected before the third review, alongside ongoing negotiations with commercial creditors.
Background and Outlook
The second review approval follows a staff-level agreement reached in November 2024 after an IMF mission assessed Ethiopia’s progress.
Previously, Ethiopia completed the first review of its four-year ECF program. On October 18, 2024, the IMF board approved the first review, enabling a disbursement of $340.7 million.
As Ethiopia continues its reform journey, the IMF’s ongoing support underscores the importance of economic stability, debt sustainability, and strengthened social safety nets in achieving long-term growth.
