Ethiopia has qualified for disbursement of $261 million in financing from the International Monetary Fund (IMF) to meet its fiscal and balance of payments needs, under a four-year $3.4 billion Extended Credit Facility (ECF) approved in July 2024.

The fund’s executive board completed its fourth review of Ethiopia’s macroeconomic performance under the programme, clearing the release of SDR 191.7 million ($261 million). This brings total IMF disbursements under the programme to $2.18 billion.

IMF deputy managing director Nigel Clarke said Ethiopia has continued to make progress in advancing its ECF-supported reform agenda.“Measures to enhance the foreign exchange market, modernise monetary policy, mobilise fiscal revenues, and advance the financial regulatory agenda continue to show encouraging results, with better-than-anticipated macroeconomic outcomes” Mr Clarke said.“Maintaining the reform momentum remains key to the promising macroeconomic outlook.”Forex overhaulThe National Bank of Ethiopia (NBE) is working to strengthen the functioning of the foreign exchange market, including publishing auction guidelines consistent with international best practice, limiting interventions to auctions, and developing a plan to bring the State-owned Commercial Bank of Ethiopia’s net open foreign exchange position within prudential limits.“Developing the interbank forex market will be important to strengthen banks’ forex risk management and enhance transparency,” Mr Clarke said.

Ethiopia’s overall achievement under the programme shows that all quantitative performance criteria and most indicative targets were met.

The IMF said prudent expenditure control and sustained efforts to mobilise domestic resources are essential for fiscal sustainability. It said tax and customs administration reforms are key to broadening the tax base, maximising tax policy reform gains and fostering a more stable taxation environment.“Phasing out fuel subsidies is important for rebuilding fiscal buffers and improving the efficiency of spending, while social protection expenditure should be safeguarded,” says Clarke.“Securing a debt treatment will help restore debt sustainability and meet financing needs. Continued avoidance of non-concessional borrowing, except financing for the Koysha dam project, and careful evaluation of proposed new concessional debt, will help contain debt vulnerabilities.”The fund said finalising the central bank’s governance reform plan, including appointing new board members in line with the amended central bank law, is critical to ensuring the regulator’s autonomy, strengthening its capacity to execute its mandate and improving its financial position.

Fiscal guardrailsHowever, the IMF noted that while the direction of fiscal reforms has remained consistent with programme commitments, the Federal Budget for the 2025/26 fiscal year deviated from parameters agreed at the third review in May 2025.“The authorities have committed to a set of measures to ensure the fiscal deficit is financeable, and expenditures remain consistent with programme objectives,” the fund says.“The structural benchmark on the publication of Ethiopia Investment Holdings’ (EIH) financial statements was not met due to implementation delays. Maintaining a tight monetary stance continues to be appropriate to anchor inflation expectations and support further declines in inflation. The authorities continue to take steps to enhance the functioning of the foreign exchange market.”The IMF said revenue mobilisation has been strong and recent tax policy reforms bode well for broadening the tax base and raising revenue potential. It added that tax and customs administration reforms will be critical to expanding the tax base fairly and sustainably, and to fostering a stable taxation environment that supports private investment.

The fund also noted progress in debt restructuring negotiations under the Common Framework, including the signing of the Official Creditor Committee memorandum.“Discussions with private external creditors are ongoing. The financing assurances received and adjustment efforts made are consistent with IMF policy requirements and programme parameters,” the fund said.

Prime Minister Abiy Ahmed’s administration has faced mounting pressure from the World Bank and IMF to float the currency and implement foreign exchange market reforms as a condition for financial support. The NBE has regularly reviewed market performance since the transition to a new foreign exchange regime on July 29, 2024.

Ethiopia is pursuing wide-ranging economic reforms to liberalise key sectors, including finance, to attract foreign investment after years of foreign currency shortages.

Ethiopia’s Eurobond, issued in 2010 and due in 2024, first defaulted in December 2023 after the country missed a $33 million interest payment — the continent’s largest sovereign default at the time.

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