RENEW Strategies

IMF’s USD 2.9 Billion Financing Package for Ethiopia

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Tsegamlak Solomon
| March 4, 2020

It has been approximately two years since Prime Minister Abiy Ahmed took power as the head of the government. Since then, the country has gone through various political and economic reform programs.

The release of opposition political leaders and journalists are noteworthy events in the political reforms undertaken by PM Abiy. On the economic front, the government has adopted a new Homegrown Economic Reform Program (“Reform Program”) tailored to the country’s needs.

The Reform Program was introduced as a tool to leverage the achievements of the Growth and Transformation Plan (GTP) for private sector development. The Reform Program is based on three pillars, i.e., macroeconomic reforms, sectoral reforms and structural reforms. It aims to correct the emerging macroeconomic imbalances prevalent in the country, ease structural bottlenecks and introduce efficient and transparent institutions, among others.

With this background, the International Monetary Fund (IMF) staff team visited Addis Ababa for consultation with the Government of Ethiopia from October 29 to November 8, 2019. During the meeting, the Government requested a three-year $2.9 billion financing package that could be supported by the IMF under its Extended Credit Facility (ECF) and Extended Fund Facility (EFF). The IMF has approved the loan in support of the Reform Program, which is designed, as per the IMF report, to eliminate macroeconomic imbalances and lay the foundation for sustainable and inclusive growth. This is supported by the Ethiopian Government’s new trend towards allowing the private sector to take the wheel in leading the economy.

The IMF financing package will primarily support the implementation of the macroeconomic pillar of the Reform Program. Specifically, the financing will be used to address the foreign exchange shortage prevalent in the country, reduce debt vulnerabilities, reform the financial sector and boost revenue mobilization. Moreover, the IMF package is expected to facilitate the transformation of the economy from public to private sector-led growth.

Ethiopia has been one of the fastest-growing economies in the world, averaging around 9% economic growth per year from 2007/08 to 2017/18 (World Bank). However, the economy has recorded a decline in the rate of growth in the past couple years. This is mainly due to the forex crunch that the country is facing. The facilitation of this financing package by the IMF, and its focus, in part, on addressing the foreign exchange shortage, is expected to boost the country’s economic growth. In addition, the IMF funds can be seen as an example that, together with the Reform Program, the government is loosening its stronghold in the economy and providing a new play ground for the private sector.

Read more in a recent article by the Financial Times: IMF Poised to Approve Landmark $3Bn Loan for Ethiopia.


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