Ethiopia Anticipates $10.5 Billion From IMF and World Bank

Prime Minister Abiy Ahmed announced on Thursday that Ethiopia stands to receive $10.5 billion of financing if ongoing negotiations with the International Monetary Fund and World Bank are fruitful. This support comes amid challenges including high inflation and persistent foreign currency shortages, which led Ethiopia to ‘selectively default’ on its Eurobond debt last December.

Initially Ethiopia aimed to borrow approximately $3.5 billion through an IMF reform initiative. Additionally, the country was pursuing $3.5 billion in financial assistance from the World Bank and seeking another $3.5 billion through restructuring its debt obligations. Analysts suggest that Ethiopia might have to consider devaluing its birr currency, which trades at roughly half the official exchange rate on the black market, as a condition for securing IMF backing.

Abiy informed lawmakers those extensive discussions and negotiations with the IMF and World Bank spanned five years due to the firm positions taken by both sides. “With the backing of supportive nations, many of our proposals appear to be gaining acceptance,” he stated optimistically. He highlighted that if these negotiations succeed and reforms are agreed upon, Ethiopia stands to receive $10.5 billion in the coming years.

Regarding reforms, Abiy noted that while the government is hesitant about immediate implementation in some areas, he didn’t elaborate further. “Certain reforms are deemed necessary now, while others are considered suitable to maintain as they are,” he explained. “If these recommendations are endorsed and we reach an agreement, a significant opportunity lies ahead. This reform initiative will significantly lighten the burden of debt,” the prime minister emphasized.

Ethiopia’s $28 billion external debt was almost entirely accumulated during the past two decades. Recent financial reforms have succeeded in curbing the growth in sovereign debt, something creditors have viewed positively. The country’s hard currency denominated foreign debt is relatively low by international standards, at about 10% of GDP, but given the lack of foreign currency reserves, low productivity, and trade deficit, this debt has become difficult to manage. In order to try and fix these long term structural challenges, the government seeks to implement its ambitious Home-Grown Economic Plan.