Frequently Asked Questions on Ethiopia

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On July 29, 2024, the IMF Executive Board approved an SDR 2.556 billion (about US$3.4 billion) Extended Credit Facility (ECF) arrangement for Ethiopia.
The approval enables an immediate disbursement equivalent to SDR 766.75 million (about US$1 billion).
The four-year ECF arrangement supports the authorities’ Homegrown Economic Reform Agenda, a comprehensive policy package to stimulate private sector activity and increase economic openness.

Support a robust, inclusive, and sustainable economy by:
- Removing distortions that hold back investment and growth.
- Ensuring sustainable financing conditions for public spending priorities in health and education.
Provide a framework for successful completion of the ongoing debt restructuring, alongside substantial external financing from other development partners, notably the World Bank.
Strengthen social safety nets to mitigate reform impacts on vulnerable households.

Move to a market-determined exchange rate to alleviate acute FX shortages.
Expected effects and rationale:
- Exporters, investors, and remittance senders will be able to obtain a fair exchange for foreign currency.
- Removal of exchange rate overvaluation, identified as the key relative price distortion causing protracted balance of payment (BOP) vulnerabilities.
Transitional impacts and mitigation:
- Adjusting the exchange rate will make some imported commodities more expensive.
- A spending package of about 1½ percent of GDP in the first year of the Fund-supported program will:
- Increase coverage and benefit amounts of targeted pro-poor programs.
- Provide temporary subsidies for key imported goods, such as fuel and fertilizers, affected by the FX reform.
- Increases in spending on targeted programs for vulnerable households will be permanent.
Exchange rate reforms will generate some tax revenue gains.

Authorities plan to raise tax revenues over time to levels closer to averages in other African countries to sustainably meet public spending goals, notably pro-poor spending.
Fiscal sustainability measures supported by the program include:
- Introduction of an excise stamp.
- Modernized VAT regimes.
Higher revenues are expected to increase space for pro-poor, social, and capital expenditure.
Transparency and reporting enhancements:
- Improve fiscal transparency by bringing quasi-fiscal operations (implicit taxes and spending arising from exchange rate and interest rate distortions) onto the budget, for example via explicit subsidies on fuel and fertilizers.
- Publish regular Ministry of Finance reports:
- Monthly reports covering budget revenue, expense, and financing execution.
- Comprehensive mid-year review analyzing performance and policy.
- Digitalize public sector financial management systems to improve tracking, control of spending, and data collection.

Authorities had already taken steps to reduce inflation before program approval; inflation has been declining in recent months.
Pre-program measures included:
- Reducing the inflationary practice of financing the government deficit through monetary expansion—“direct advances”—from the National Bank.
- Imposing caps on credit growth.
- Restrained fiscal spending.
Program supports modernization of the monetary policy framework:
- Introduction of an interest-rate based framework focused on price stability.
- A new monetary policy interest rate—the National Bank rate—and the first monetary operations were introduced on July 11. 2024.
- Authorities will eliminate direct advances completely.
Anticipated monetary response:
- Exchange rate reform will lead to a one-off increase in prices for some imported commodities.
- The National Bank of Ethiopia (NBE) may have to take further policy action by raising interest rates to ensure inflation quickly returns to a downward path.

Measures to strengthen governance and transparency of SOEs include:
- New public enterprise law and regulations.
- Stronger oversight institutions.
- Requirements to publish IFRS audited accounts for key SOEs.
Strengthen the National Bank of Ethiopia’s legal framework and independence to enable it to meet its mandate to lower inflation and ensure financial stability.

Key questions regarding the IMF arrangements with Ethiopia
- Key questions regarding the IMF arrangements with Ethiopia (Markdown version)
- Key questions regarding the IMF arrangements with Ethiopia (PDF)