BY YANET FANTAYE WOGAYEHU – As part of the recent four-year US$ 3.4 billion Extended Credit Facility (ECF) arrangement reached between the International Monetary Fund (IMF) and the Government of Ethiopia, the latter is set to access $345 million from the Fund.
“The IMF staff team and the Ethiopian authorities have reached staff-level agreement on the first review of Ethiopia’s economic program under the ECF arrangement. The agreement is subject to approval of IMF management and the Executive Board in the coming weeks. Upon completion of the Executive Board review, Ethiopia would have access to SDR 255.60 million (equivalent to about US$345 million),” said Mr. Alvaro Piris, IMF mission leader, who visited Ethiopia from September 17 to 26, 2024.
Ethiopia has been facing chronic forex shortage for the past few decades. Some economist have been arguing that liberalization of the forex market can solve the shortage while others worry such move if not properly managed can damage the economy of the country which imports about $18 billion commodities annually while only generating some $4 billion.
Following the recent liberalization of forex market, in a few days the value of Ethiopian Birr in commercial banks has depreciated by about 100 percent from about 58 Birr for one USD to around 116 Birr – almost equal to the black market value.
In its statement on Friday, IMF has indicated that the mission has discussed progress on reforms and the authorities’ policy priorities in the context of the first review of Ethiopia’s economic program supported by the IMF’s Extended Credit Facility (ECF). The arrangement was approved by the IMF Executive Board on July 29, 2024, for an initial total amount of SDR 2.556 billion (about $3.4 billion at that time).
“Ethiopia’s economic reform program, including the transition to a market-determined exchange rate, is advancing well. Exchange rate movements following the adoption of a floating exchange rate regime on July 29, 2024, have largely closed the gap between formal and parallel markets, with little disruption to the broader economy. The new exchange rate regime is alleviating the acute shortage of foreign exchange that previously existed, lifting a significant impediment to economic activity,” said Mr. Alvaro Piris.
“Looking ahead, steady advancement of the homegrown economic reform plan will help anchor macroeconomic stability and support economic growth. Continued tight monetary policy and the end of monetary financing of government will reduce inflation while a temporary fiscal spending package will help cushion the socio-economic impact of the reforms. Revenue mobilization and reforms to strengthen the financial position of state-owned enterprises will create space for sustainable priority spending by the government,” he said.
IMF’s ECF provides medium-term financial assistance 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).
With over 126.5 million population in 2023, Ethiopia remains one of the poorest, with a per capita gross national income of $1,020. according to the World Bank. Based on the latest Multidimensional Poverty Index of the UNDP, 68.7 percent of the population in Ethiopia (82,679 thousand people in 2021) is multidimensionally poor while an additional 18.4 percent is classified as vulnerable to multidimensional poverty (22,076 thousand people in 2021).
Meanwhile, the east African country ambitiously targets to reach lower-middle-income status by 2025.