IMF concludes visit, as creditors give Ethiopia more time

Creditors agree to give Ethiopia more time to reach an agreement with the IMF as staff members end their visit to Addis Ababa

On Tuesday, the International Monetary Fund (IMF) concluded its visit to Ethiopia aimed at discussing IMF financial support to the east African country. However, no agreement was reached during the visit, leaving the East African nation without a commitment it had hoped to secure from its official international creditors. “The team made significant strides in determining the potential ways the IMF could assist the authorities’ economic program,” stated the IMF. Discussions are set to resume later this month during the IMF’s spring meeting in Washington to further explore the matter.

In December, Ethiopia chose to selectively default on its $1 billion Eurobond obligations, sighting the G20 framework, which reprieved the country from debt repayment responsibilities for two years. Authorities in Addis Ababa maintain that the default is therefore within the rules of treating all creditors equally as it missed a coupon payment on its Eurobond. European creditors were left ruing as a result. “The thing is, we have an international obligation to treat all creditors the same, and we cannot just pay our obligations on the Eurobond, and choose to ignore other creditors, that’s not how it works”—Said Finance Minister Ahmed Shide to local media. 

In recent years Ethiopia’s economy faced significant headwinds, firstly due to the pandemic, internal conflict, and the war in Ukraine, all of which contributed to high inflation, a scarcity of foreign currency, and mounting repayments for external debts, which began to accumulate rapidly starting in the mid to late 2000s. However, these indicators have improved lately and the debt to GDP ratio continues to recover as growth picked up. IMF data indicates overall external debt has been decreasing.

However, the Paris Club of developed creditor nations, excluding China, warned last year that Ethiopia’s agreement to suspend debt payments until 2025 might be invalidated if the country failed to secure an IMF loan by March 31. However, according to a Reuters report, “Ethiopia’s official international creditors are willing give the East African nation extra time until the end of June to wrap up talks on IMF support, a source close to Paris Club of creditors said on Wednesday”.

Ethiopia had previously reached a separate agreement with China to suspend debt repayment in 2023. Ethiopia has been without an IMF program since the expiration of its last lending arrangement with the fund in late 2022. According to Boston University, Chinese lenders had pledged over $14 billion in loans to the country between 2006 and 2022.

As of 2022, China has granted debt forgiveness for 23 interest-free loans across 23 countries. On the contrary, the proclivity of European or in general Western lenders to be fixated on unrealistic repayment schedules is a determent to both creditors’ institutions, and debtor countries in Africa. The proactive debt-service relief from China not only showcases a willingness to work collaboratively with debtor nations in Africa, but also contributes to strengthening diplomatic ties. 

More news is expected when the IMF reconvenes in Washington for its spring meeting this month.  Ethiopia’s loan request above its special drawing rights (SDR), and the difficult topic of upfront foreign exchange unification, which basically means bringing the Birr to equal its parallel exchange rate in the black market are some of the key hold ups so far.

Abren has obtained information that the IMF had earmarked a front-load disbursement of 30% of its initial fund amount to support currency unification, but there was likely disagreement from Ethiopian authorities, who sought a larger sum to cushion the Birr in case of devaluation. Given these scenarios, perhaps the total financial support being argued over is somewhere between $3 billion and 3.5 billion. But continued fund support pending review goes significantly above and beyond this figure in the years ahead. 

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