Ethiopia has taken a significant step toward economic stabilization by securing a $3.4 billion financing program from the International Monetary Fund (IMF). This development comes on the same day that Ethiopia’s central bank floated the birr currency, a crucial move to secure IMF support and advance progress on debt restructuring. The Horn-of-Africa nation has been grappling with high inflation and persistent foreign currency shortages. Ethiopia’s economic challenges led to the country defaulting on its debt at the end of last year, becoming the third African economy to do so in recent years. The country has been engaged in discussions with the IMF since last year to establish a new lending program. This effort follows the abandonment of the last IMF-supported program, agreed upon in 2019, due to the conflict in the northern region of Tigray, which ended with a peace deal in November 2022. The IMF has stated that the newly agreed program will facilitate an immediate disbursement of approximately $1 billion. Ethiopia, Africa’s second-most populous country, requested debt restructuring under the Group of 20’s Common Framework process in early 2021. However, progress on restructuring was hindered by the two-year civil war in Tigray. In recent months, the government in Addis Ababa has introduced economic reforms, which analysts link to the negotiations for a new IMF program. One notable reform is the adoption of an interest rate-based monetary policy earlier this month. These developments suggest that Ethiopia is committed to addressing its economic challenges and fostering a more stable environment for its citizens and its economy.
