The International Monetary Fund (IMF) has approved a 3.4 billion dollars financing package to back Ethiopia's economic reform plans over the next four years.
The IMF Executive Board signed off on a 48-month arrangement under the Extended Credit Facility. It provides about 850 percent of Ethiopia's IMF quota to fund the government's Homegrown Economic Reform Agenda.
The approval just comes a day after Ethiopia floated its currency, causing the birr to depreciate by as high as 30 percent immediately after the change.
The program aims to address macroeconomic imbalances, restore debt sustainability and lay the foundations for private sector-led growth.
A key priority is transitioning Ethiopia's exchange rate policy to a market-determined system and modernising monetary policy to stabilise inflation and address foreign exchange shortages.
Other reforms target boosting revenues, restructuring sovereign debt and strengthening state firms to reduce financial vulnerabilities.
The IMF disbursement of around one billion dollars immediately will help Ethiopia meet balance of payments needs and support budget spending.
IMF Managing Director Kristalina Georgieva said “this is a landmark moment for Ethiopia.” She promised to assist reform efforts to make “the economy more vibrant, stable, and inclusive for all Ethiopian.”
Challenges like high inflation, low reserves and unsustainable debt have pressured the economy. The IMF backing provides an anchor for policy changes aimed at increased stability, competitiveness and inclusive development.
Deputy Managing Director Antoinette Sayeh said sustainment of macro policies will be key to successful reforms on exchange rates, inflation and fiscal management. Authorities must ensure protection of vulnerable households, according to her.
The recent measures to decisively tackle macroeconomic imbalances, including moving to a market-determined exchange rate, removing current account restrictions, and modernizing the monetary policy framework to control inflation, are critical steps forward, she added.
Ethiopia expects more financing from the World Bank, creditors and bilateral partners in the days to come.