IMF Executive Board Approves Four-Year US$3.4 billion Extended Credit Facility Arrangement for Ethiopia
IMF News, July 29, 2024
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- Published: July 29, 2024
Approval and Financing
- The Executive Board approved an SDR 2.556 billion (about US$3.4 billion) ECF arrangement for Ethiopia.
- The arrangement is equal to 850 percent of quota.
- The decision enables an immediate disbursement equivalent to SDR 766.75 million (about US$1 billion).
- The four-year financing package will support the authorities’ Homegrown Economic Reform (HGER) Agenda.
- The ECF arrangement is expected to catalyze additional external financing from development partners and creditors.
Program Objectives and Rationale
- Purpose:
- Address macroeconomic imbalances.
- Restore external debt sustainability.
- Lay foundations for higher, inclusive, and private sector-led growth.
- Help meet balance of payments needs and provide support to the budget.
- Context:
- Ethiopia has faced significant economic pressures amid a series of large shocks, high inflation, low international reserves, and unsustainable debt.
- The public investment-led growth model has reached its limits, prompting the authorities to request the four-year ECF arrangement.
Key Policy Measures Supported by the Program
- Move to a market-determined exchange rate to help address external imbalances and relieve FX shortages.
- Combat inflation by:
- Modernizing the monetary policy framework.
- Eliminating monetary financing of the budget.
- Reducing financial repression.
- Create space for priority public spending by mobilizing domestic revenues.
- Restore debt sustainability, including securing timely debt restructuring agreements with external creditors.
- Strengthen the financial position of state-owned enterprises to tackle critical macro-financial vulnerabilities.
- Strengthen social safety nets to mitigate the impact of reforms on vulnerable households, including increasing the budget allocation to the targeted cash transfer program (PSNP) and temporary subsidies on fuel and fertilizers to be unwound gradually.
- Strengthen public investment management, including spending related to climate change and post-conflict reconstruction.
- Enhance transparency and management of fiscal risks, particularly those related to extrabudgetary units and large state-owned enterprises.
- Power sector reforms including tariff adjustment.
- Improve financial sector governance, progressively reduce financial repression, and strengthen the NBE’s mandate and governance arrangements.
- Advance home-grown structural reforms focusing on better governance and public service delivery, competitiveness, and the business climate to stimulate private sector-led growth.
Expected Effects and Catalytic Role
- The program is expected to:
- Help catalyze additional external financing from development partners.
- Provide a framework for successful completion of ongoing debt restructuring.
- Support reforms intended to make the economy more vibrant, stable, and inclusive.
Official Statements
- IMF Managing Director Kristalina Georgieva: described the approval as "a testament to Ethiopia’s strong commitment to transformative reforms" and expressed the IMF’s support to help make the economy "more vibrant, stable, and inclusive for all Ethiopians."
- Deputy Managing Director and Acting Chair Antoinette Sayeh: summarized Ethiopia’s economic pressures and the comprehensive reform program supported by the ECF-arrangement, highlighting policy measures listed above, protection for the vulnerable, the use of the ‘credible official creditor process’ under IMF policy reform that allowed timely financing assurances from the Official Creditor Committee under the G20 Common Framework, and the importance of recapitalization of Commercial Bank of Ethiopia and related financial sector reforms.
- The IMF extended sympathies to the Ethiopian people regarding the landslide in the Gofa Zone.
Annex — Program Summary (restated)
- The economic program envisages a comprehensive policy package to stimulate private sector activity, increase economic openness, and promote higher and more inclusive growth.
- Strengthening social safety nets to mitigate the impact of reforms on vulnerable households is a critical component.
Ethiopia: Selected Economic Indicators, 2021/22-2028/29
- Output
- Real GDP growth (%):
- 2021/22: 6.4
- 2022/23: 7.2
- 2023/24: 6.1
- 2024/25: 6.5
- 2025/26: 7.1
- 2026/27: 7.7
- 2027/28: 8.0
- 2028/29 (Proj.): 7.8
- Prices
- Inflation - average (%):
- 2021/22: 33.9
- 2022/23: 32.5
- 2023/24: 26.9
- 2024/25: 30.1
- 2025/26: 16.2
- 2026/27: 12.2
- 2027/28: 10.4
- 2028/29 (Proj.): 9.6
- General government finances
- Revenue (% GDP):
- 2021/22: 8.1
- 2022/23: 7.9
- 2023/24: 7.3
- 2024/25: 8.3
- 2025/26: 9.8
- 2026/27: 10.8
- 2027/28: 11.2
- 2028/29 (Proj.): 11.4
- Expenditure (% GDP):
- 2021/22: 12.7
- 2022/23: 9.4
- 2023/24: 11.3
- 2024/25: 12.4
- 2025/26: 13.3
- 2026/27: 13.6
- 2027/28: 13.9
- Fiscal balance, including grants (% GDP):
- 2021/22: -4.2
- 2022/23: -2.6
- 2023/24: -1.7
- 2024/25: -2.1
- 2025/26: -2.0
- Public debt (% GDP)1:
- 2021/22: 48.9
- 2022/23: 40.2
- 2023/24: 34.4
- 2024/25: 42.9
- 2025/26: 38.8
- 2026/27: 35.8
- 2027/28: 33.6
- 2028/29 (Proj.): 31.5
- Money and Credit
- Broad money (% change):
- 2021/22: 27.2
- 2022/23: 26.6
- 2023/24: 14.4
- 2024/25: 30.3
- 2025/26: 25.1
- 2026/27: 23.5
- 2027/28: 21.7
- Credit to private sector and state-owned enterprises (% change):
- 2021/22: 18.9
- 2022/23: 24.1
- 2023/24: 12.0
- 2024/25: 21.2
- 2025/26: 25.5
- 2026/27: 31.3
- 2027/28: 20.1
- 2028/29 (Proj.): 18.2
- Balance of payments
- Current account (% GDP):
- 2021/22: -4.0
- 2022/23: -2.8
- 2023/24: -4.3
- 2024/25: -3.2
- 2025/26: -2.5
- 2026/27: -1.9
- FDI (%GDP):
- 2021/22: 2.6
- 2022/23: 2.1
- 2023/24: 1.6
- 2024/25: 2.7
- 2025/26: 3.2
- 2026/27: 2.9
- 2027/28: 3.0
- Reserves (in months of imports):
- 2021/22: 0.8
- 2022/23: 0.5
- 2023/24: 1.2
- 2024/25: 2.0
- 2025/26: 2.5
- 2026/27: 3.5
- 2027/28: 3.6
- External debt (% GDP):
- 2021/22: 24.0
- 2022/23: 18.1
- 2023/24: 15.4
- 2024/25: 28.3
- 2025/26: 24.5
- 2026/27: 22.6
- 2027/28: 19.8
- Exchange rate
- Real effective exchange rate (% change, end of period, depreciation –):
- 2021/22: 10.1
- 2022/23: …
Note:
- 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.
Press Release No. 24/291 — July 29, 2024 — IMF Communications Department
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