Ethiopia has received a $3.4 billion loan from the International Monetary Fund (IMF) after deciding to let its currency’s value be determined by the market. This move is part of a broader effort to address the country’s shortage of foreign currency and attract more foreign investments.
The IMF stated that the four-year loan will support Ethiopia’s “Homegrown Economic Reform Agenda,” which aims to stabilize the economy, manage external debt, and promote growth led by the private sector. The National Bank of Ethiopia previously controlled the exchange rate, leading to a shortage of dollars, which hurt importers and foreign investors.
After the central bank removed these controls, the Ethiopian currency, the birr, dropped by 30%, now trading at 74.73 per dollar. The central bank will now only intervene in the foreign exchange market in a limited way.
To receive this IMF loan, Ethiopia agreed to implement certain conditions, including adopting policies to keep inflation low and making government financial reforms to increase revenue.
The agreement with the IMF came after lengthy discussions with Prime Minister Abiy Ahmed’s government, which aims to secure over $10 billion from the IMF and World Bank to manage the country’s growing debt. Ethiopia defaulted on a $33 million international bond payment in December 2023 and had more than $28 billion in external debt by the end of that year.
The lending program was first proposed in 2019 but faced delays due to conflicts in the Tigray region and slow economic reforms. During this period, the US, IMF, and World Bank withdrew their support, worsening the economic situation already strained by the COVID-19 pandemic.
