- Ethiopia secures US$464 million IMF disbursement after fifth ECF review
The International Monetary Fund has approved an immediate disbursement of about US$464 million to Ethiopia after completing the fifth review of the country’s programme under the Extended Credit Facility.
The disbursement, equivalent to SDR 342.05 million, is expected to help Ethiopia meet balance of payments and fiscal financing needs at a time when the war in the Middle East has created fresh external pressures, particularly through higher imported fuel costs.
The completion of the review brings total disbursements under Ethiopia’s IMF-supported programme to about US$2.65 billion.
The Fund said about US$200 million in additional resources has been brought forward under the programme to help ease near-term financing pressures and support the authorities’ response to the impact of the Middle East war.
Ethiopia’s 48-month ECF arrangement was approved in July 2024 for SDR 2.56 billion, equivalent to about US$3.40 billion at the time of approval, representing 850.00% of the country’s quota.
The programme supports the authorities’ Homegrown Economic Reform Agenda, which seeks to correct macroeconomic imbalances, rebuild buffers and lay the foundation for stronger private sector-led growth.
The IMF said programme performance has remained broadly in line with commitments, with all quantitative performance criteria and most indicative targets met.
The Fund noted that strong exports, improved revenue mobilisation and reserve accumulation point to progress from the reform programme, even as Ethiopia continues to navigate debt restructuring and external shocks.
“The authorities continue to make progress in advancing their economic reform agenda, with favourable macroeconomic outcomes despite a challenging environment,” said IMF Deputy Managing Director and Acting Chair Nigel Clarke.
“The war in the Middle East represents a significant external shock, and continued reform efforts alongside adroit responses to emerging challenges will be important to sustain macroeconomic momentum.”
Ethiopia’s economy remains one of the fastest-growing in Africa. Real GDP growth is projected at 9.20% in 2025/26, unchanged from 2024/25, before moderating to 7.80% in 2026/27. Growth is then expected to remain strong over the medium term, averaging around 8.00% through 2030/31.
Inflation, however, remains a central challenge. Average inflation is projected to decline from 16.00% in 2024/25 to 11.70% in 2025/26, before rising slightly to 12.30% in 2026/27. It is expected to fall further over the medium term, reaching 6.70% by 2030/31.
The IMF said maintaining a tight monetary policy stance remains appropriate to anchor inflation expectations, adding that the National Bank of Ethiopia should be ready to tighten further if second-round inflationary pressures emerge.
“Maintaining a tight monetary stance remains appropriate to anchor inflation expectations, and the NBE should stand ready to tighten further if second round inflationary pressures emerge,” Mr Clarke said.
The Fund also welcomed efforts to deepen foreign exchange market functioning, including partial easing of exchange restrictions, development of an interbank foreign exchange market and measures to improve competition among banks.
Ethiopia has been implementing major foreign exchange reforms as part of the programme, after years of tight controls, shortages and distortions in the currency market.
The IMF said sustained efforts by the National Bank of Ethiopia to improve price discovery in the foreign exchange market remain essential.
It also urged the authorities to enforce net open foreign exchange position limits, deepen the interbank foreign exchange market, relax exchange restrictions and improve treatment of bank clients.
The Fund further called for a well-designed plan for the central bank to improve its gold market operations and eventually exit the gold market in a manner consistent with reserve accumulation objectives.
On fiscal policy, the IMF said tax revenue growth and fiscal outcomes have remained strong, reflecting progress in domestic revenue mobilisation.
Government revenue is projected to rise from 9.20% of GDP in 2024/25 to 10.80% in 2025/26, and further to 11.40% in 2026/27. By 2030/31, revenue is expected to reach 12.30% of GDP.
The fiscal deficit, including grants, is projected at 2.00% of GDP in 2025/26, before narrowing to 1.20% in 2026/27. The deficit is expected to remain contained at about 1.60% of GDP over the later years of the projection period.
The IMF said prudent expenditure management and sustained revenue mobilisation would be critical to ensuring fiscal sustainability while protecting priority spending.
“Prudent expenditure management and sustained revenue mobilisation remain key to advancing development objectives and fiscal sustainability,” Mr Clarke said.
He added that phasing out fuel subsidies while protecting vulnerable groups would create space for development and social spending.
The Fund said the government’s contribution to the Productive Safety Nets Programme was lower than targeted because donor contributions exceeded expectations. Overall support to beneficiaries, however, remained above objectives, including an urban supplement introduced in response to the external shock.
The IMF also urged further progress on fiscal transparency, fiscal risk monitoring and oversight of state-owned enterprises.
Debt restructuring remains another major component of Ethiopia’s reform programme.
The authorities are continuing engagement with creditors, with several bilateral agreements signed with official creditors and significant progress made with external commercial creditors.
The IMF welcomed the agreement-in-principle reached with Eurobond holders, saying financing assurances received and adjustment efforts made are consistent with Fund policy requirements and programme parameters.
“Completing the debt restructuring process through good faith engagement with creditors will help restore debt sustainability and meet financing needs,” Mr Clarke said.
He also cautioned that prudence in contracting new debt, alongside development of a liquid local currency market, would be important to limit debt vulnerabilities.
Public debt is projected to decline from 50.50% of GDP in 2024/25 to 45.30% in 2025/26, then to 40.80% in 2026/27. By 2030/31, public debt is expected to fall further to 28.60% of GDP.
External debt is projected to decline from 31.80% of GDP in 2024/25 to 29.90% in 2025/26, and to 16.70% by 2030/31.
Ethiopia’s external position is also expected to strengthen gradually, although pressures remain.
The current account deficit is projected at 2.50% of GDP in 2025/26, before narrowing to 1.30% in 2026/27. Foreign direct investment is expected to remain around 3.00% of GDP over the medium term.
Foreign reserves are projected to rise from 1.70 months of imports in 2024/25 to 2.10 months in 2025/26 and 2.70 months in 2026/27, before reaching 3.80 months by 2030/31.
The Fund also called for continued strengthening of financial sector oversight and financial safety nets, alongside close monitoring of private credit growth.
Credit to the private sector and state-owned enterprises is projected to rise sharply by 55.90% in 2025/26, after contracting by 9.70% in 2024/25, partly reflecting the impact of Commercial Bank of Ethiopia recapitalisation.
The IMF said further central bank governance reforms, including appointing new independent members to the National Bank of Ethiopia Board and recapitalising the central bank, would strengthen its autonomy and capacity to execute its policy mandate.
For Ethiopia, the latest IMF disbursement provides important financing support at a delicate moment.
The country’s reform programme is delivering stronger macroeconomic outcomes, including high growth, rising revenue and improved reserves, but risks remain elevated from external shocks, inflation, fuel prices, debt restructuring and financial sector vulnerabilities.
The IMF’s message is that Ethiopia’s reform path remains broadly on track, but sustaining the momentum will require tight monetary policy, continued exchange-rate reforms, careful fiscal management, protection of vulnerable households and completion of the debt restructuring process.
The additional resources brought forward under the programme will help cushion the immediate impact of the Middle East war, but the harder task will be ensuring that the reform gains translate into lasting stability, stronger private-sector growth and improved living conditions for Ethiopians.
