There are still "differences" between the International Monetary Fund (IMF) and Ethiopia over a loan and reforms package, but talks are continuing, a senior IMF official said on Friday.

Ethiopia may need to devalue its birr currency, which is trading on the black market about 50% weaker than the official rate against the U.S. dollar, to secure the support of the IMF. The fund has not confirmed this is a condition of funding but usually favours flexible, market-determined exchange rates.

East Africa's most populous country, already struggling with high inflation and chronic foreign currency shortages, in December became the third African state in as many years to default on its debt.

"Negotiations are ongoing," IMF Mission Chief for Ethiopia Alvaro Piris Chavarri told reporters at the IMF and World Bank Spring Meetings in Washington. "There are still differences."

"I'm cautiously optimistic," he said, declining to give details of the differences still to be resolved. "Discussions take the time they take."

Ethiopia hasn't received any IMF funds since 2020 and its last lending arrangement with the fund went off track in 2021. The federal government and a rebellious regional authority signed a deal in late 2022 to end a two-year civil war.

Ethiopia's financing needs have been "broadly" agreed on, Piris Chavarri said, but declined to comment on reports that would include a $3.5 billion loan from the IMF.

Ethiopia is also in talks with the World Bank about $3.5 billion in support and plans to find another $3.5 billion in savings through a debt restructuring, a Western diplomat familiar with the situation told Reuters.

The Ethiopian finance minister and central bank governor were among officials that met with senior IMF and World Bank executives in Washington to discuss ongoing reforms "including liberalization (and) addressing FX distortions," Ethiopia's foreign ministry said in a statement on Thursday.

"The meetings discussed and agreed on a way forward on how the IMF and the WBG (World Bank) can jointly support the country's ambitious economic program," the statement said.

A World Bank spokesperson said by email on Thursday that it was optimistic about the impact of a future deal, but that there were "several subsequent steps ... (and) the details of these next phases are being finalized."

(Reporting by Maxwell Akalaare Adombila and Rachel Savage in Johannesburg, Additional reporting by Aaron Ross in Nairobi and Dawit Endeshaw in Addis Ababa, Editing by Mark Potter)