The International Monetary Fund (IMF) Executive Board has completed the first review of Ethiopia's 48-month Extended Credit Facility (ECF) arrangement. This decision enables an immediate disbursement of approximately US$340.7 million, aiding Ethiopia in meeting its balance of payments needs. With this development, total disbursements under the arrangement have reached about US$1.363 billion.
The ECF arrangement, approved on July 29, 2024, aims to support Ethiopia's Homegrown Economic Reform Agenda (HGER). The agenda seeks to address macroeconomic imbalances and establish a foundation for private sector-led growth.
According to the IMF, all quantitative performance criteria and four out of five structural benchmarks for the first review were met. Although there was a slight delay in finalizing the emergency liquidity assistance framework before Board approval, it was completed successfully.
"The implementation of the authorities’ economic program, including the transition to the new exchange rate regime, has been commendable," stated Mr. Bo Li, Deputy Managing Director and Chairman of the Board. He noted that "the spread between formal and parallel market exchange rates has narrowed," indicating minimal disruption to the broader economy.
The steady execution of HGER reforms is crucial for maintaining macroeconomic stability and fostering stronger economic growth. The IMF emphasized that tight monetary policy and eliminating government monetary financing are vital for reducing inflation sustainably.
"Ethiopia’s program under the ECF has made a solid start," said Mr. Bo Li. He highlighted that transitional arrangements addressing foreign exchange backlogs from past fuel imports are in place and rely mainly on market participants with additional contributions from the National Bank of Ethiopia (NBE).
Furthermore, Mr. Li remarked on efforts to enhance FX market efficiency: "Continuing to restrict NBE’s FX interventions and additional policy measures will be critical." He also acknowledged progress in implementing early stages of monetary policy reforms: "Implementation...has been encouraging."
The Ethiopian authorities have initiated comprehensive tax mobilization reforms guided by a recently approved National Medium-Term Revenue Strategy. These reforms include a new VAT law aimed at streamlining exemptions and expanding revenue bases.
Additionally, amendments to laws governing NBE propose significant improvements in its mandate and functions. Efforts towards debt sustainability continue as authorities work towards reaching agreements with creditors under the Common Framework by their second program review.