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The executive board of the International Monetary Fund is slated to convene next week to discuss Ethiopia’s request for a new fund-supported program, according to sources familiar with the situation.
The formal meeting regarding the extended credit facility is scheduled for July 29, although the sources, who requested anonymity due to the confidential nature of the information and the possibility of changes to the agenda, noted that the schedule is atypical. This is because the Washington-based lender has yet to announce a staff-level agreement for Ethiopia, a step that usually precedes such meetings.
Ethiopia is close to finalizing a $10.5 billion support package from the International Monetary Fund (IMF) and the World Bank, pending the resolution of the ongoing negotiations. This substantial financial assistance is designed to advance Ethiopia’s economic reform agenda, which has been under discussion since 2021.
The Homegrown Economic Reform Agenda (HGER II), the centerpiece of the reform initiative, targets major macroeconomic issues and aims to unlock the country’s economic potential. Significant actions have already been implemented to curb inflation and stabilize the economy, including stringent fiscal and monetary measures, including the modernization of the central bank.
However, some uncertainties remain. Negotiations are continuing over the potential devaluation of the Ethiopian birr, which is currently trading about 50% weaker than the official exchange rate on the black market. Such a move may be essential to secure IMF backing.
Prime Minister Abiy’s administration acknowledged that while many reforms have been agreed, there are still areas where the government is cautious about immediate changes. The government is pushing back against uncontrolled devaluation and austerity plans, particularly given recent economic ruin brought by such policies in Nigeria, as well as mass anti-austerity protests in Kenya last month. Addis Ababa will be cautious not to enter into such a scenario.
Kenya’s anti-austerity protests began in earnest in March 2023. These demonstrations were driven by widespread public discontent over rising living costs and perceived government mismanagement. The protests reached new heights following an IMF deal that birthed the highly unpopular finance bill. It serves as a cautionary tale for Ethiopia.
If a successful deal is reached, the funding made available will be critical in easing Ethiopia’s debt burdens and supporting its economic recovery. The country has designs for robust economic development in the years ahead.
