Via IMF (Den Internationale Valutafond)

IMF Executive Board Approves US$2.9 Billion ECF and EFF Arrangements for Ethiopia

December 20, 2019

  • IMF Board approves SDR 2.1049 billion (about US$2.9 billion) ECF and EFF arrangements for Ethiopia.
  • The three-year financing package will support the implementation of the authorities’ Homegrown Economic Reform Program.
  • The Fund-supported program aims to help authorities reduce external imbalances, contain debt vulnerabilities, lift financial repression, increase domestic resource mobilization which will also help devote adequate resources to pro-poor spending.

On December 20, 2019, the Executive Board of the International Monetary
Fund (IMF) approved three-year arrangements under the Extended Credit
Facility (ECF) and the Extended Fund Facility (EFF) for Ethiopia in an
amount equivalent to SDR 2.1049 Billion (around 700 percent of quota or
about US$2.9 billion) to help the country implement their `Homegrown
Economic Reform Plan’ to maintain macroeconomic stability and improve
living standards.

The program aims to support the authorities’ implementation of their
ambitious reform agenda and catalyze concessional donor financing. The
Executive Board’s decision will enable an immediate disbursement
equivalent to SDR 223.85 million (about US$308.4 million). The
Executive Board today also concluded the 2019 Article IV consultation
with Ethiopia. A press release will be issued separately.

At the conclusion of the Executive Board’s discussion, Mr. David
Lipton, First Deputy Managing Director and Acting Chair, stated:

“A decade of rapid growth, underpinned by strong policies, has supported a reduction in poverty and improved living standards in Ethiopia. However, the public investment-driven growth model has reached its limits. The authorities have prepared a Homegrown Economic Reform Plan to address macroeconomic imbalances, reduce external and debt vulnerabilities, phase out financial repression, and lay the foundation for private sector-led growth.

“A financial arrangement with the Fund will support the authorities’ plan, helping to catalyze concessional financing from other development partners. The program aims to address foreign exchange shortages and external imbalances; reform state-owned enterprises (SOEs); safeguard financial stability; and strengthen domestic revenue mobilization.

“Monetary tightening and reforms will help rein in inflation, facilitate credit to the private sector, and strengthen competitiveness. Greater exchange rate flexibility, supported by tighter monetary policy, will durably address foreign exchange shortages and narrow the spread between the official and parallel market rates. Further efforts are needed to modernize the monetary policy framework and deepen financial inclusion.

“Fiscal consolidation and reforms aim to reduce debt vulnerabilities, increase revenue, and strengthen expenditure efficiency while protecting social and development spending. Improving the financial positions of SOEs and strengthening their governance and oversight will also be critical to ensuring debt and financial stability.

“With strong ownership and full implementation of reforms, the authorities’ economic plan should eventually improve macroeconomic outcomes and lower external vulnerabilities. High priority is placed on removing constraints to private investment and improving the business climate, setting the stage for an acceleration in private sector-led growth.”


Recent Economic Developments

Ethiopia has sustained high economic growth over the last decade.
Substantial progress on reducing poverty and improving social
indicators has also been noteworthy. In 2018/19, real gross domestic
product (GDP) is estimated to have grown by 9 percent, driven by
manufacturing and services. However, the performance of goods exports
remained weak and foreign exchange shortages persisted. Policies
appropriately targeted at containing public investment and debt
contributed to a further narrowing of the current account deficit to
4.5 percent of GDP and a reduction in public and publicly-guaranteed
debt to 57 percent of GDP (from XY percent). Inflation remained
elevated in double digits, largely due to higher food prices, though
non-food inflation has also been trending upward. While revenues came
in below target, cuts in expenditure contained the fiscal deficit to
2.5 percent of GDP, below budget.

Program Summary

The public investment-driven model of the past two decades has
delivered impressive economic and social outcomes but has resulted in
growing vulnerabilities. To tackle these vulnerabilities, the
authorities have recently unveiled an ambitious Homegrown Economic Reform Plan, (HERP), for which they are
seeking Fund financial support. The new Fund-supported program is
well-aligned with the HERP and designed to address macroeconomic
imbalances and implement structural reforms to upgrade policy
frameworks and facilitate the shift from public sector to private
sector-led growth.

The program will:

Address the foreign exchange shortage and the
transition to a more flexible exchange rate regime. A further
rationalization of import-heavy public investment projects, combined
with reforms to boost FDI and exports, will address external sector
vulnerabilities. Greater exchange rate flexibility over time will
eliminate the gap between the official and parallel market and boost

Strengthen oversight and management of state-owned
enterprises (SOE) to contain debt vulnerabilities. Maintaining strict
control of SOE borrowing will contribute to continued reduction of debt
vulnerabilities. Publication of a consolidated financial performance
for SOEs based on financial statements will increase transparency and

Boost domestic revenue mobilization and increase expenditure
efficiency to create space for reducing poverty and infrastructure

. Revenue reforms on both the policy and administration front are
designed to increase the tax to GDP ratio. These reforms, combined with
efforts to strengthen public financial management, including increasing
the efficiency of public investment, will ensure that infrastructure
and social spending needs are met without undermining debt

Reform the financial sector to support private
investment and modernize the monetary policy framework. Reducing
financial repression and developing the financial sector will increase
private sector access to credit. A phasing out of central bank direct
financing of the budget and development of short-term market-based
instruments are essential to create a monetary policy framework that is
well-equipped to consistently achieve inflation objectives.

Reinforce the supervisory framework and financial
safety nets. Progress towards strengthening regulatory and supervisory
standards will contribute to continued financial stability. Approval
and implementation of regulations for deposit insurance will be an
important step to bolster financial safety nets.

IMF Communications Department


Phone: +1 202 623-7100Email:


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