News IMF Backs Ethiopia Amid Mounting Economic Pressures
IMF Backs Ethiopia Amid Mounting Economic Pressures
Staff-level deal secures next funding tranche, but forex bottlenecks and debt overhang loom large
The International Monetary Fund (IMF) will be disbursing a further USD 260 million as part of Ethiopia’s Extended Credit Facility (ECF) arrangement at what it says is a critical juncture characterized by persistent foreign exchange shortages, widening parallel market disparities, and unresolved debt restructuring talks.
An IMF statement released on Friday praised Ethiopia’s macroeconomic performance, indicating it has exceeded program expectations, with better-than-forecast results for inflation, export growth, and international reserves.
Still, the Fund asserts that maintaining reform momentum remains essential for consolidating recent gains, correcting macroeconomics imbalances, restoring external debt sustainability, laying the foundations for high, private sector-led growth, and ensuring the success of Ethiopia’s homegrown reform agenda
The statement follows a two-week IMF staff mission to Addis Ababa in April, and builds on consultations that took place during the Fund’s Spring Meetings in Washington, D.C. last month.
The four-year USD 3.4 billion facility based on the ECF agreement—approved in mid-2024—is designed to support Ethiopia’s efforts to stabilize its economy after years of conflict, global shocks, and macroeconomic imbalance.
Though the IMF acknowledged that key indicators like inflation, exports, and international reserves have performed better than anticipated, it also issued a sober warning: the structural cracks in Ethiopia’s economy remain unresolved.
“While real exchange misalignment has been corrected and FX availability has improved from a year ago, the spread between the official and parallel exchange rate widened again in early 2025 and high fees and commissions persist,” said Alvaro Piris, head of the IMF mission.
The foreign currency market remains one of Ethiopia’s biggest pain points. While the government has transitioned to a more flexible exchange rate regime, access to foreign exchange is still limited for businesses, investors, and even essential importers.
IMF officials stressed that unless transparency improves and restrictions ease, currency misalignment and market fragmentation will persist.
“Actions that are being rolled out to enhance transparency, reduce costs, ease restrictions on current account transactions, and strengthen prudential regulation will help to improve the functioning of the FX market,” reads the IMF statement.
Ethiopia is also under pressure to finalize a memorandum of understanding with its official creditors under the G20 Common Framework. Without meaningful debt restructuring, the IMF Board’s final approval for the next tranche of funding could face delays.
“The path forward requires continued reform momentum,” Piris emphasized, urging the government to sustain tight monetary policy, deepen revenue mobilization efforts, and broaden its engagement with the private sector.
He added that removing the last vestiges of financial repression and building capital markets are necessary for long-term growth and macroeconomic resilience.
The IMF team met with top Ethiopian officials including Finance Minister Ahmed Shide and National Bank Governor Mamo Mihretu, along with representatives from the banking industry and civil society. While the tone of discussions was constructive, the IMF’s statement reflected the complexity of Ethiopia’s balancing act: pushing reforms forward amid political sensitivities, tight liquidity, and ongoing public expectations for relief.
Friday’s announcement marks a cautious endorsement of Ethiopia’s progress—but it is not a vote of confidence without conditions. The Fund is backing Ethiopia’s homegrown reform agenda, but insists that without full commitment to difficult structural reforms, the early gains may be short-lived.
“Further revenue mobilization is needed to provide sustainable financing for critical development spending. Reforms to improve the business environment, ensure fair taxation practices, encourage foreign direct investment, and facilitate open dialogue with business will be important to secure private sector investment,” reads the statement.
It also emphasized that efforts to end the remaining elements of financial repression and develop the capital market will help to mobilize savings and support the efficient allocation of capital.
As the country waits on the IMF Executive Board’s decision and creditor negotiations to materialize, the underlying message remains: the hard part is far from over.
The looming risks were also outlined in the IMF’s first review of the ECF program in November 2024.
The report indicated that Ethiopia’s forex reserves had almost tripled to USD 3.6 billion within a month of signing the deal with the IMF, partially bolstered by high gold export revenues.
The IMF called the implementation of economic reforms in Ethiopia “commendable,” praising progress made in narrowing the spread between the formal and parallel market exchange rates.
The spread fell from 96 percent to less than 10 percent over the last few months. The report notes that forex liquidity is still limited, evidenced by a lack of activity in the newly-opened interbank forex market and banks’ preference for satisfying own-client demand.
“The supply of foreign exchange is picking up, helping alleviate acute foreign exchange shortages. Nonetheless, some unmet foreign exchange demand persists as economic agents are still adjusting to the new FX regime,” reads the report.
The IMF urges continued tight monetary policy and elimination of monetary financing of the government as crucial to cooling inflation, while it recommends expanding social safety nets to mitigate the impacts of reforms on vulnerable people.