## Frequently Asked Questions on Ethiopia

## Source details

**Canonical URL:** [Frequently Asked Questions on Ethiopia](https://www.imf.org/en/countries/eth/ethiopia-qandas)

## Other formats

- [Markdown version](/en/countries/eth/ethiopia-qandas/index.md)
- [Structured JSON version](/en/countries/eth/ethiopia-qandas/index.json)
- [Bundle manifest](/en/countries/eth/ethiopia-qandas/bundle-manifest.json)

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### Overview of the IMF Arrangement
- 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.

### Program Objectives and Rationale
- 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.

### Exchange Rate Reform and Foreign Exchange (FX) Policy
- 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.

### Fiscal Policy, Revenue Mobilization, and Social Spending
- 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.

### Monetary Policy and Inflation Management
- 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.

### State-Owned Enterprises (SOEs) and Institutional Strengthening
- 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.

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## Content in this bundle

- **Key questions regarding the IMF arrangements with Ethiopia**
  - [Key questions regarding the IMF arrangements with Ethiopia (Markdown version)](/-/media/files/countries/resrep/eth/faq-eth-amharic-version.pdf.md){rel="alternate" type="text/markdown"}
  - [Key questions regarding the IMF arrangements with Ethiopia (PDF)](/-/media/files/countries/resrep/eth/faq-eth-amharic-version.pdf){rel="external" type="application/pdf"}

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## References

- [July 29, 2024](https://www.imf.org/en/videos/view/6359567900112)
- [IMF Executive Board Approves Four-Year US$3.4 billion Extended Credit Facility Arrangement for Ethiopia, July 29, 2024](https://www.imf.org/en/News/Articles/2024/07/29/pr24291-ethiopia-imf-exec-board-approves-4yr-us3b-ecf-arr)
- [Ethiopia and the IMF](https://www.imf.org/en/Countries/ETH)
- [The IMF's Extended Credit Facility (ECF)](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/04/Extended-Credit-Facility)

_Source: https://www.imf.org/en/countries/eth/ethiopia-qandas_