IMF Warns Ethiopia on FX Market, Debt, Revenue Shortfalls Despite Growth Upside

Ethiopia’s push for economic reform won a cautious vote of confidence from the International Monetary Fund (IMF) yesterday, as the Fund approved a fresh 262.3 million dollars disbursement under its 48-month Extended Credit Facility, bringing total support to about 1.87 billion dollars.

In a statement from Washington, IMF staff praised Addis Abeba’s success in taming inflation, boosting gold exports and building foreign-exchange reserves. However, they warned that unless authorities take “decisive steps” on key structural reforms, recent gains could quickly unravel.

Since the Birr was floated last year, the spread between the official and parallel-market exchange rates has narrowed and dollar liquidity has improved. Still, the IMF’s Deputy Managing Director, Nigel Clarke, said that “removing the remaining FX restrictions and enhancing market transparency is essential to lock in competitiveness gains.” The Fund criticised lingering controls on current-account transactions and opaque pricing mechanisms, arguing that these restraints continue to choke supply.

On the revenue front, Ethiopia’s tax-to-GDP ratio remains among the lowest in sub-Saharan Africa. It climbed only marginally to an estimated 8.5pc in 2024/25. According to the IMF, phasing out fuel subsidies and overhauling income, excise and property taxes will be necessary if Addis Abeba hopes to narrow a projected fiscal deficit of 1.5pc of GDP this year without cutting social-welfare spending.

External debt has surged to nearly 30pc of GDP after the Birr’s sharp depreciation, prompting the authorities to seek debt relief under the G20 Common Framework. While an agreement in principle has been reached with official creditors, the IMF urged parallel negotiations with commercial lenders “to secure comparable terms," and cautioned against resorting to fresh non-concessional borrowing outside of the Koysha hydropower project.

Despite forecasts of roughly seven percent annual GDP growth through 2028/29, the IMF flagged several lingering risks, including regional security tensions, climate-related shocks and the possibility of waning donor support.

“Maintaining tight monetary and financial conditions, alongside prudent fiscal management, is vital to navigate these headwinds,” said the Fund.

Put your comments here

Related Posts

Commentaries | Jul 06,2019

Momentum as Political Model for Ethiopia

Fortune News | Oct 21,2023

Contraband Steel Floods Market, Straining Domestic Producers

Sunday with Eden | Apr 10,2021

Everyone Needs to Answer for Ethiopia Predicaments

Fortune News | Oct 23,2018

Al-Amoudi’s Ethiopia Asset Over $1.2b

Radar | Jul 18,2020

Ethiopia, France Ink €20m Grant Agreements

Viewpoints | Jun 08,2024

Blossoming Industry Caught Between Export Aspirations and Domestic Market Allure

Fortune News | Apr 12,2020

Ethiopia Requests $1.6b Emergency Funding

Fortune News | Nov 04,2023

Ethiopia Eyes $750m Agri Investment from Private Sector

Viewpoints | May 18,2019

Creative Indusries Open Path to Growth

Fortune News | Jul 13,2020

City Upgrades Karra Cattle Market for 52m Br

---