Ethiopia has taken a significant step towards economic stability by reaching an agreement with the International Monetary Fund for a $3.4 billion financing program. This development comes as the country implements key reforms to address its economic challenges.
In a bold move, Ethiopia’s central bank has floated the birr currency, marking a crucial shift in monetary policy. This action is seen as a pivotal step in securing IMF support and advancing the country’s long-delayed debt restructuring efforts.
The Horn of Africa nation has been grappling with high inflation and chronic foreign currency shortages. These issues culminated in Ethiopia becoming the third African economy in recent years to default on its debt at the end of last year.
Negotiations with the IMF have been ongoing since last year, following the abandonment of a previous fund-supported program due to conflict in the northern Tigray region. The new agreement will enable an immediate disbursement of about $1 billion.
Ethiopia’s journey towards economic reform has been complex. The country requested a debt restructuring under the G20’s Common Framework process in early 2021, but progress was hindered by the two-year civil war in Tigray.
Recently, the government in Addis Ababa has introduced several economic reforms, including the adoption of an interest rate-based monetary policy. These changes are seen as closely linked to the negotiations for the new IMF program.
As Ethiopia embarks on this new economic path, the success of these reforms will be crucial in addressing the country’s financial challenges and fostering economic stability.