The International Monetary Fund (IMF) has approved the fifth review of Ethiopia’s Extended Credit Facility (ECF) programme, unlocking an immediate disbursement of about US$464 million to support the country’s balance of payments and budget financing needs while helping it cope with the economic fallout from the conflict in the Middle East.
The IMF Executive Board announced the decision on Wednesday, saying Ethiopia’s reform programme remained broadly on track despite mounting external pressures, including sharply higher imported fuel prices linked to the regional conflict.
The latest disbursement, equivalent to SDR 342.05 million, brings total IMF financing under the four-year programme to approximately US$2.65 billion. The Fund also approved a rephasing of the programme that brings forward about US$200 million in financing to ease near-term funding pressures arising from the Middle East crisis.
The 48-month ECF arrangement, approved in July 2024, totals SDR 2.556 billion, or about US$3.4 billion at the time of approval, and supports Ethiopia’s Homegrown Economic Reform Agenda aimed at restoring macroeconomic stability and fostering private sector-led growth.
The IMF said overall programme performance remained consistent with agreed commitments. All quantitative performance criteria and most indicative targets were achieved during the review period.
It noted that government contributions to Ethiopia’s Productive Safety Nets Programme fell below target because donor funding exceeded expectations, allowing overall assistance to beneficiaries to remain above programme objectives, including additional support for urban households affected by the external shock.
The Fund said Ethiopia’s macroeconomic performance had strengthened considerably, citing robust export growth, improved tax revenue collection and continued accumulation of foreign exchange reserves as evidence that ongoing reforms were yielding results.
The authorities have also continued efforts to deepen reforms in the foreign exchange market, including partially easing exchange restrictions, developing an interbank foreign exchange market and promoting greater competition among banks.
The IMF said maintaining a tight monetary policy remained appropriate to contain inflation and anchor inflation expectations, while urging the National Bank of Ethiopia to remain prepared to tighten policy further if inflationary pressures intensify.
It also encouraged continued modernisation of the monetary policy framework and further reforms to create a more competitive, market-oriented financial sector.
On the fiscal front, the Fund welcomed Ethiopia’s strong revenue performance, saying prudent expenditure management and continued tax administration reforms would be essential to maintaining fiscal sustainability while protecting priority social spending.
The IMF also encouraged the gradual removal of fuel subsidies, accompanied by measures to shield vulnerable households, saying such reforms would create additional fiscal space for development and social programmes.
Progress on debt restructuring also received positive assessment. The IMF said Ethiopian authorities had signed several bilateral agreements with official creditors and made significant advances in negotiations with commercial lenders.
It welcomed an agreement in principle reached with Eurobond holders, saying the financing assurances obtained and the government’s policy adjustments remained consistent with IMF programme requirements.
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IMF Deputy Managing Director Nigel Clarke said Ethiopia had continued to advance its economic reform agenda despite operating in a difficult external environment.
“The war in the Middle East represents a significant external shock, and continued reform efforts alongside adroit responses to emerging challenges will be important to sustain macroeconomic momentum,” Clarke said.
He stressed the importance of continuing reforms to improve the functioning of the foreign exchange market, including enforcing foreign exchange position limits, expanding the interbank market and gradually relaxing exchange restrictions.
Clarke also called for continued strengthening of financial sector oversight, improvements in fiscal transparency, careful management of new borrowing and completion of Ethiopia’s debt restructuring through continued engagement with creditors.
He said reforms to strengthen the governance and independence of the National Bank of Ethiopia, including appointing additional independent board members and completing its recapitalisation, would enhance the central bank’s ability to carry out its policy mandate while supporting long-term macroeconomic stability.
