IMF’s Board Approves Landmark $2.9bln Loan for Ethiopia

ADDIS ABEBA – International Monetary Fund or IMF’s board has approved a 2.9 billion US dollar financing package to support the implementation of Ethiopia’s Homegrown Economic Reform Program on Friday, the Fund said.

The three-year financing package will help the Ethiopian authorities reduce external imbalances, contain debt vulnerabilities, the Fund said after the approval of the fund.

It also intends to lift financial repression, increase domestic resource mobilization which will also help devote adequate resources to pro-poor spending, according to the IMF.

The Executive Board’s decision, after it has concluded the 2019 Article IV consultation with Ethiopia on Friday, will enable an immediate disbursement equivalent to about 308.4 million US dollars.

David Lipton, First Deputy Managing Director and Acting Chair, said a decade of rapid growth, “underpinned by strong policies, has supported a reduction in poverty and improved living standards in Ethiopia”.

“However, the public investment-driven growth model has reached its limits. The authorities have prepared a Homegrown Economic Reform Plan to address macroeconomic imbalances, reduce external and debt vulnerabilities, phase out financial repression, and lay the foundation for private sector-led growth,” said the acting chair of IMF’s board.

“A financial arrangement with the Fund will support the authorities’ plan, helping to catalyze concessional financing from other development partners.,” he said. “The program aims to address foreign exchange shortages and external imbalances; reform state-owned enterprises (SOEs); safeguard financial stability; and strengthen domestic revenue mobilization.

“Monetary tightening and reforms will help rein in inflation, facilitate credit to the private sector, and strengthen competitiveness. Greater exchange rate flexibility, supported by tighter monetary policy, will durably address foreign exchange shortages and narrow the spread between the official and parallel market rates. Further efforts are needed to modernize the monetary policy framework and deepen financial inclusion.

“Fiscal consolidation and reforms aim to reduce debt vulnerabilities, increase revenue, and strengthen expenditure efficiency while protecting social and development spending. Improving the financial positions of SOEs and strengthening their governance and oversight will also be critical to ensuring debt and financial stability.

“With strong ownership and full implementation of reforms, the authorities’ economic plan should eventually improve macroeconomic outcomes and lower external vulnerabilities. High priority is placed on removing constraints to private investment and improving the business climate, setting the stage for an acceleration in private sector-led growth.”