IMF Nears Approval of $251m Loan to Ethiopia

The International Monetary Fund (IMF) is close to approving a 251-million-dollar loan to Ethiopia, applauding "progress in the economic reforms," which saw the exchange rate shift toward a market-determined regime.

IMF staff which visited Addis Abeba last week reached an agreement with the authorities to conclude the second review of Ethiopia's four-year, 3.4-billion-dollar Extended Credit Facility arrangement. The Fund’s Executive Board is expected to review and approve the agreement in the coming weeks.

"Ethiopia's economic reform program, including the transition to a market-determined exchange rate, continues to advance well," said Alvaro Piris, head of the IMF mission to Ethiopia. "With macroeconomic stability supported by prudent policy and a so far muted foreign-exchange reform impact on inflation, conditions for economic growth in the period ahead appear promising."

Piris believes that the adoption of a market-driven exchange rate has begun to address long-standing foreign-exchange shortages with the spread between the official and parallel currency markets narrowed to below 10pc, after briefly widening in October. The authorities attributed the easing of foreign-exchange surrender requirements and increased activity in the nascent interbank foreign-exchange market to this improvement.

The National Bank of Ethiopia (NBE) has also launched a domestic interbank money market, integrating the country's financial systems and enhancing liquidity management. However, it remains to be fully functional where trading has been paused after one transaction.

"To ensure progress toward low and stable inflation in the medium term, it will be important to maintain overall tight monetary and financial conditions during the transition to interest rate-based monetary policy," said Piris in a statement he issued today.

His team met with officials, including Finance Minister Ahmed Shide and National Bank Governor Mamo Mihretu.

The federal government implemented a supplementary budget last week, approved by the Council of Ministers, hoping to ease tight liquidity conditions while keeping fiscal targets meet the IMF program's objectives.

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