According to Bloomberg, the International Monetary Fund (IMF) has approved the immediate disbursement of approximately $1 billion to Ethiopia. This funding is part of a larger package of about $10.7 billion that the country expects to receive from various creditors through loans, grants, and debt re-profiling. The IMF stated that this program aims to attract additional external financing from development partners and provide a framework for the successful completion of ongoing debt restructuring efforts.
Ethiopia, which has around $28.4 billion in external debt, has been seeking to restructure its loans since 2021. However, progress was hindered by a two-year civil war in the northern Tigray region, which concluded in November 2022. The country defaulted on a eurobond payment in December. IMF Managing Director Kristalina Georgieva described the approval as a landmark moment for Ethiopia.
The central bank of Ethiopia facilitated the IMF deal by announcing that it would allow the national currency, the birr, to trade freely. This move is similar to Egypt's decision in March to let its currency weaken by almost 40%, which enabled an $8 billion bailout from the IMF. On Monday, the birr depreciated by 23%, according to rates published by the state-owned Commercial Bank of Ethiopia, the country's largest lender.
Earlier this month, Ethiopia's official creditors committee granted the country debt relief under the Group of 20-backed Common Framework, which coordinates debt restructuring talks between official, commercial, and private creditors. Ethiopia is the fourth country to renegotiate its debt under this mechanism. As part of its efforts to secure the IMF program, the country has been working to open up its economy under Prime Minister Abiy Ahmed.
The IMF stated that the new program aims to address macroeconomic imbalances, restore external debt sustainability, and lay the foundations for higher, inclusive, and private sector-led growth. The fund also mentioned that Ethiopia's fuel and fertilizer subsidies, which are common in emerging economies, will need to be gradually phased out over time. The IMF projects that Ethiopia's real gross domestic product (GDP) will grow by 6.5% in the current fiscal year, which began in July, and accelerate to 8% by 2027-28. Additionally, the inflation rate is expected to decrease from 30% to about 10% over the same period, while the external debt-to-GDP ratio will decline from 28% to approximately 23%.