Ethiopia Wins Financing Assurances Key for New IMF Loan
Ethiopia’s official creditors have granted financing assurances to the country to help fast-track approval of a new loan by the International Monetary Fund’s executive board, according to people familiar with the matter.
Members of an official creditor committee held a meeting last week to approve the financing assurances, according to two of the people, who asked not to be named because the talks are private. Financing assurances mean that bilateral creditors such as the Paris Club and China provided certainty that they will restructure their loans to Ethiopia in a way that’s consistent with the fund’s program.
The Horn of Africa nation has been in talks with the IMF for more than two years about a new program after its latest loan went off track in 2021, as a civil war soured investor sentiment and sapped economic growth. Ethiopia said it stopped making payments on its overseas bond in December, becoming the latest emerging-market sovereign to default.
The Paris Club didn’t immediately respond to comment. Officials from Ethiopia’s finance ministry and the central bank didn’t reply to a request for comment.
Creditor countries usually provide financing assurances after a staff-level agreement on a new program is publicly announced by the Washington-based IMF. The assurances are required per IMF rules for a loan to be approved by the fund’s executive board and kick off the disbursements.
The IMF hasn’t announced a staff level agreement for Ethiopia. An IMF spokesman said that fund has made progress with Ethiopian authorities and development partners on a program, without commenting on financing assurances or a staff-level agreement.
Ethiopia aims to restructure billions of dollars in external debt using the Group of 20’s Common Framework mechanism, which seeks to coordinate talks between official, commercial and private creditors. The official creditor committee of Ethiopia is co-chaired by France and China, and provided a debt standstill to the country until the end of 2024. Italy, Japan, India, and Saudi Arabia are among other members of the committee.
Ethiopian Prime Minister Abiy Ahmed told parliament earlier this month that he expects talks with the IMF and World Bank could unlock more than $10 billion in financing in the coming years, without providing details.
The Common Framework, which has been supported by the IMF, has gained a reputation for working painfully slow, a result of misaligned expectations of the various creditors, particularly between China, the Paris Club and bondholders. Ceyla Pazarbasioglu, head of the fund’s Strategy, Policy and Review Department, said Wednesday that the process is speeding up.
“Let’s see how Ethiopia is going to be quick. Let’s see what the next case will bring,” she said. “So we will prove that it works” as restructurings are resolved quicker.
