IMF Executive Board Completes the Second Review under the Extended Credit Facility (ECF) Arrangement for Ethiopia

IMF News, January 17, 2025

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IMF Executive Board Completes the Second Review under the Extended Credit Facility (ECF) Arrangement for Ethiopia

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• Published: January 17, 2025

Board decision and financing

• The Executive Board completed the second review of the 48-month Extended Credit Facility (ECF) for Ethiopia on January 17, 2025.
• The Board’s decision allows an immediate disbursement of about US$248 million (SDR 191.7 million).
• Completion of the review brings total disbursements under the arrangement to about US$1.611 billion.
• The ECF was approved on July 29, 2024 and the arrangement totals SDR 2.556 billion (850 percent of quota) or about US$3.4 billion at the time of program approval.
• The ECF forms part of a US$10.7 billion support package from development partners and creditors for Ethiopia.

Program implementation and conditionality

• 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) was reset from end-January 2025 to end-March 2025.
• The authorities continue efforts to restore debt sustainability and are taking steps to secure a debt treatment; progress on debt restructuring negotiations under the Common Framework is described as welcome.
• Financing assurances received and adjustment efforts made are consistent with IMF policy requirements and program parameters.

Macroeconomic and market developments

• Foreign exchange market functioning has continued to improve with 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.
• The transition to a flexible exchange rate has advanced further; the parallel market premium has stabilized in single digits with rising FX supply.
• Recommendations by IMF management include:
  • Continue to restrict NBE’s FX interventions and adopt additional policy measures to support FX market development.
  • Maintain prudent macroeconomic policies, including continued tight monetary policy and avoiding monetary financing of government deficits.
  • Reach a positive real monetary policy rate to build credibility of the new monetary policy framework and change market expectations for inflation and the exchange rate.
  • Carefully sequence removal of the credit growth cap along with policy rate changes and clearly communicate policy intentions.
  • Enforce net open position regulations for banks to help address financial sector vulnerabilities.
  • Expedite efforts to expand the targeted social safety net (PSNP) to protect vulnerable households and ensure efficient use of public resources.
  • Bring fuel prices to full cost recovery to mobilize revenues and rebuild fiscal buffers.
  • Sustain tax revenue mobilization efforts such as implementation of VAT and excise tax reforms.
  • Close remaining gaps in NBE governance and autonomy under the new NBE law.
  • Continue financial sector reforms, including modernizing bank regulation, strengthening bank supervision, and monitoring non-performing loans.
  • Finalize an agreed Memorandum of Understanding on debt treatment with the Official Creditor Committee under the G20 Common Framework by the time of the third review, while making progress on comparable treatment with Eurobond holders and other external commercial creditors.

Fiscal and financial status highlights

• The supplementary budget approved by parliament in late November 2024 maintains fiscal targets in line with program objectives.
• Progress is noted in raising domestic fiscal revenues, strengthening state-owned enterprises, and anchoring financial stability, with continued commitment needed to sustain achievements.
• Expanding social safety nets is emphasized as critical to mitigating the impact of reforms on vulnerable people.

Ethiopia — Selected Economic Indicators, 2021/22–2028/29 (Prel./Proj.)

• Output
  • Real GDP growth (%): 2021/22: 6.4; 2022/23: 7.2; 2023/24: 8.1; 2024/25: 6.6; 2025/26: 7.1; 2026/27: 7.7; 2027/28: 8.0; 2028/29: 7.8
• Prices
  • Inflation - average (%): 2021/22: 33.9; 2022/23: 32.5; 2023/24: 26.6; 2024/25: 20.7; 2025/26: 16.9; 2026/27: 10.6; 2027/28: 9.5; 2028/29: 8.8
• General government finances
  • Revenue (% GDP): 2021/22: 7.9; 2022/23: 7.3; 2023/24: 8.5; 2024/25: 9.8; 2025/26: 10.8; 2026/27: 11.2; 2027/28: 11.4
  • Expenditure (% GDP): 2021/22: 12.7; 2022/23: 11.6; 2023/24: 12.3; 2024/25: 13.2; 2025/26: 13.4
  • Fiscal balance, including grants (% GDP): 2021/22: -4.2; 2022/23: -2.6; 2023/24: -2.0; 2024/25: -1.7; 2025/26: -1.9; 2026/27: -1.5
  • Public debt (% GDP)1: 2021/22: 48.9; 2022/23: 40.2; 2023/24: 34.4; 2024/25: 45.6; 2025/26: 39.8; 2026/27: 36.9; 2027/28: 32.2
• Money and Credit
  • Broad money (% change): 2021/22: 27.2; 2022/23: 14.1; 2023/24: 26.1; 2024/25: 29.3; 2025/26: 29.4; 2026/27: 21.3; 2027/28: 20.4
  • Credit to private sector and state-owned enterprises (% change)2: 2021/22: 18.9; 2022/23: 24.1; 2023/24: 9.7; 2024/25: -24.0; 2025/26: 42.2; 2026/27: 42.6; 2027/28: 25.6; 2028/29: 23.2
• Balance of payments
  • Current account (% GDP): 2021/22: -4.0; 2022/23: -2.9; 2023/24: -4.4; 2024/25: -3.0; 2025/26: -2.5; 2026/27: -2.1
  • FDI (% GDP): 2021/22: 2.6; 2022/23: 2.1; 2023/24: 1.9; 2024/25: 3.4; 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: 0.7; 2024/25: 1.4; 2025/26: 3.5
  • External debt (% GDP): 2021/22: 24.0; 2022/23: 18.1; 2023/24: 15.1; 2024/25: 26.2; 2025/26: 21.9; 2026/27: 19.1
• Exchange rate
  • Real effective exchange rate (% change, end of period, depreciation –): 2021/22: 10.3; 2022/23: 27.9; 2023/24: 12.6

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.

Key program implications

• The disbursement of about US$248 million (SDR 191.7 million) is intended to help Ethiopia meet balance of payments needs.
• Continued implementation of reforms and agreed debt-treatment steps are necessary to restore debt sustainability and sustain macroeconomic stability.
• Expanding targeted social safety nets and mobilizing tax and fuel revenues are highlighted as priorities to protect vulnerable households and rebuild fiscal buffers.

International Monetary Fund — Press Release No. 25/006, January 17, 2025.

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• የዐለም አቀፍ የገንዘብ ድርጅት አስፈጻሚ ቦርድ ለኢትዮጵያ የተዘጋጀውን የተራዘመ የብድር አገልግሎት ሁለተኛ ዙር ግምገማ አጠናቀቀ
  • የዐለም አቀፍ የገንዘብ ድርጅት አስፈጻሚ ቦርድ ለኢትዮጵያ የተዘጋጀውን የተራዘመ የብድር አገልግሎት ሁለተኛ ዙር ግምገማ አጠናቀቀ (Markdown version)
  • የዐለም አቀፍ የገንዘብ ድርጅት አስፈጻሚ ቦርድ ለኢትዮጵያ የተዘጋጀውን የተራዘመ የብድር አገልግሎት ሁለተኛ ዙር ግምገማ አጠናቀቀ (PDF)

References

• The Federal Democratic Republic of Ethiopia and the IMF
• Special Drawing Rights (SDRs) -- A Factsheet
• Press Releases
• PRESS CENTER
• Extended Credit Facility
• Press Release 24/291
• https://www.imf.org/en/home