Ethiopia said to be seeking $3.5 billion funding from the IMF

Addis Ababa 2022
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Reports indicate, during a call with international bondholders last Thursday, a delegation of Ethiopian officials and their advisors outlined their goal to achieve a staff-level agreement on an IMF loan by the first quarter of 2024, according to one source who preferred to remain anonymous due to the confidentiality of the discussions.

Accordingly, Ethiopia is currently engaged in discussions with the International Monetary Fund (IMF) to secure approximately $3.5 billion through a reform program.

Since 2022, Ethiopia has been seeking IMF funding surpassing 100% of its quota, but the exact amount has not been disclosed. In April, rumors circulated that the country was negotiating to borrow a minimum of $2 billion from the Fund.

The comprehensive sum Ethiopia is pursuing from the IMF remains uncertain, and it’s unclear whether this includes financing under the Resilience and Sustainability Trust (RST). The RST serves as a mechanism to assist low-income and vulnerable middle-income nations in fortifying resilience to external shocks and promoting sustainable growth.

Regarding the amount of funding under discussion, an IMF spokesperson mentioned, “Macroeconomic forecasts and external financing needs are still under discussion, including the financial support the IMF and other development partners could provide. “So far, no comment has been made by Ethiopia’s finance ministry.

According to Reuters news, the IMF figure, as indicated in the presentation is still tentative and subject to ongoing discussions. Additionally, the country is targeting $3.5 billion from the World Bank for budget support through the Development Policy Operation (DPO). In all sources revealed that the government has identified a financing gap of approximately $11.5 billion until the fiscal period of 2027/2028.

The Paris Club of developed creditor nations had stated earlier this month that Ethiopia’s agreement with bilateral creditors (excluding China) to defer debt payments until 2025 could be nullified if the country fails to secure an International Monetary Fund (IMF) loan by March 31, 2024.

As outlined in the presentation to investors, a recent debt relief agreement with Chinese lenders indicated that the Export-Import Bank of China (China EXIM) suspended payments for two years at a 3% interest rate, while the China Development Bank suspended payments until the end of 2026 at a 6% interest rate, according to multiple sources.

Despite Ethiopia’s request for debt restructuring under the Group of 20’s Common Framework process in early 2021, progress has been hindered by the outbreak of conflict in the northern Tigray region of the country in November 2020. Thereafter ongoing instability and clashes have further delayed talks with the IMF, whose main shareholder nations, particularly the United States has sought to leverage IMF funding as a tool to pressure the Ethiopian government.

On Friday, credit ratings agency S&P Global Ratings downgraded Ethiopia to “Default” after the country failed to make an interest payment due on December 11 for its $1 billion bond maturing in December 2024. The country stated it will treat all creditor equality, meaning there will be no hierarchy of repayment.

In October insider information stated, ‘Ongoing engagement between Ethiopian officials and the IMF will occur through virtual meetings’. The country’s International reserves dropped significantly to approximately US$500 million in late August, equivalent to less than two weeks of import coverage. This decline resulted from payments for fuel imports and disappointing exports, aggravating foreign exchange (FX) shortages. Despite Ethiopia’s stable economic growth and a moderate decrease in inflation, broader economic conditions are affected by the FX shortages.

Concerning exchange rate (ER) reform, authorities in Addis Ababa are hesitant to devalue the Birr and bring it in-line with the parallel market exchange rate of approximately 108 ETB per one U.S dollar without first garnering a clear financial commitment by the IMF. According to the IMF, ‘the next steps involve assessing whether their policy intentions are strong enough to proceed with a program involving unification at the first review’.

Last week the IMF granted Ethiopia’s neighbor, the Republic of Somalia a debt relief package of $4.5billion. Many African countries currently find themselves struggling with debt sustainability compounded by recent global crises and rising interest rates. A wave of defaults threatens countries such as Kenya and Ethiopia. The country of Ghana recently defaulted on its international debt obligations.

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