IMF Concludes Second ECF Review for Ethiopia

• The IMF Executive Board completed the second review of the arrangement under the Extended Credit Facility (ECF) for Ethiopia, allowing the authorities to draw the equivalent of about US$248 million (SDR 191.7 million). The ECF was approved by the IMF Executive Board in July 2024 and forms part of a US$10.7 billion support package from development partners and creditors for Ethiopia.
• The Ethiopian authorities have demonstrated strong commitment to achieving the objectives of the Fund-supported program. Implementation of ECF-supported reforms is advancing well.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed today the second review of the 48-month Extended Credit Facility (ECF) for Ethiopia. The Board's decision allows for an immediate disbursement of about US$248 million (SDR 191.7 million), which will help Ethiopia meet its balance of payments needs. The completion of the review brings total disbursements under the arrangement to about US$1.611 billion.

Ethiopia's ECF arrangement for a total of SDR 2.556 billion (850 percent of quota) or about US$3.4 billion at the time of program approval on July 29, 2024 (see Press Release 24/291 ) is aimed at supporting the authorities' Homegrown Economic Reform Agenda (HGER) to address macroeconomic imbalances and lay the foundations for private sector led growth.

All quantitative performance criteria were met. The government's contribution to the targeted social safety nets (indicative target) was lower-than-targeted mostly due to preparations needed to expand safety net programs and absorb the significantly increased budgetary envelope. The structural benchmark on finalizing the audited accounts of the National Bank of Ethiopia (NBE) has been reset from end-January 2025 to end-March 2025 to allow time for completion.

Foreign exchange market functioning has continued to improve with the authorities taking significant policy actions to strengthen market efficiency. NBE has maintained tight monetary and financial conditions, and modernization of the monetary policy framework is advancing.

Progress in raising domestic fiscal revenues, strengthening state-owned enterprises, and anchoring financial stability is promising, with continued commitment needed to sustain the achievements thus far. Expanding social safety nets is critical to mitigating the impact of reforms on vulnerable people.

The authorities continue their efforts to restore debt sustainability and are taking steps to secure a debt treatment. The progress made on debt restructuring negotiations under the Common Framework is welcome. The financing assurances received, and adjustment efforts made are consistent with IMF policy requirements and program parameters.

Following the Executive Board discussion, Mr. Nigel Clarke, Deputy Managing Director, and Chairman of the Board, made the following statement:

"The authorities continue to make strong progress in implementing their Fund-supported program and addressing macroeconomic imbalances. The transition to a flexible exchange rate has advanced further, supported by macroeconomic and foreign exchange market policy measures, and the parallel market premium has stabilized in single digits with rising FX supply.

"Continuing to restrict NBE's FX interventions and additional policy measures to support FX market development will be critical to enhance market efficiency and deepening. Prudent macroeconomic policies, including continued tight monetary policy and avoiding monetary financing of government deficits are essential to reducing imbalances and ensuring macroeconomic stability.

"Reaching a positive real monetary policy rate is a key step to build the credibility of the new monetary policy framework and change market expectations for inflation and the exchange rate. The authorities should also carefully sequence removal of the credit growth cap along with policy rate changes and clearly communicate policy intentions. Close supervision and enforcement of net open position regulations for banks will help address financial sector vulnerabilities.

"The supplementary budget that was approved by parliament in late November 2024, maintains fiscal targets in line with program objectives. The authorities should expedite efforts to expand the targeted social safety net (PSNP) to protect vulnerable households and ensure efficient use of public resources. To bring fuel prices to full cost recovery is important for mobilizing revenues and rebuilding fiscal buffers. Sustained tax revenue mobilization efforts such as the implementation of the VAT and excise tax reforms continue for creating sufficient space for social and development spending needs.

"The new law governing the NBE represents a significant advance on the existing legal framework in most respects. However, closing the remaining gaps with respect to governance and autonomy is important.

"Continued implementation of financial sector reforms, including modernizing the bank regulation framework, strengthening bank supervision, and monitoring non-performing loans, will support financial sector stability.

"The substantial progress made towards reaching an agreement on a debt treatment with the Official Creditor Committee under the G20 Common Framework is an important step towards restoring debt sustainability. The authorities are working on having an agreed Memorandum of Understanding by the time of third review, while also making progress on a comparable treatment with Eurobond holders and other external commercial creditors."

Ethiopia Selected Economic Indicators, 2021/22-2028/29

1/Public and publicly guaranteed external debt, which includes long-term foreign liabilities of NBE and external debt of Ethio-Telecom. Does not include expected debt relief.

2/ Projections from 24/25 include impact of CBE recapitalization

For digital posting, please submit press release with an editable table (no images) already inserted in Microsoft Word file to ensure that the data in the SEI table is displayed as prepared.]