The International Monetary Fund (IMF) is pushing for deeper economic reforms in Ethiopia and Somalia, to tackle debt and economic sustainability as it released a combined $291 million in budgetary support to the two countries this week.

After the fourth review of the on-going $3.4 billion Extended Credit Facility (ECF) program with Ethiopia, the IMF approved a fresh disbursement of $261 million, as it asked the country to deepen reforms towards liberalization of the economy and fiscal consolidation.“Prudent expenditure management and sustained resource mobilization will be critical for fiscal sustainability. Encouraging private investment will require efforts to improve the business environment,” said Alvaro Piris, who led the latest review mission to Ethiopia.

The lender also wants deeper reforms in the Ethiopian foreign exchange market. The country only last year shifted from a fixed exchange rate regime to a floating regime, where the value of a currency is determined by market forces rather than fixed by the Central Bank.

Ethiopia has already implemented a number of reforms under the ECF program that started in July 2024, about 7 months after the country defaulted on a $33 million Eurobond, officially pushing it into debt distress.

IMF hailed progress of implemented the recommended Homegrown Economic Reform (HGER) agenda, which has so far led to a growth in local production, exports, and government revenue, as well as a drop in inflation.“Maintaining reform momentum will be key to consolidating macroeconomic stability and supporting growth and poverty reduction in the medium term,” added Mr Piris.

For Somalia, the multilateral lender released a fresh $30 million and called for enhanced financial and debt management, after the country secured full debt relief in end 2023. The latest disbursement to Mogadishu is also part of an ECF programme with the lender that has been running since December 2023.

Under the ECF programme with Somalia, IMF had recommended key reforms including changes to the income tax law, customs modernisation, and boosting revenue administration. Mogadishu has made progress with most of the recommended reforms, the lender said, but urged more reforms to boost transparency and governance.“Further reforms to improve governance, fight corruption, and enhance climate resilience, are also encouraged,” said Mr Clarke.

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