IMF board to approve $2.9 billion loan, support “home-grown”economic growth

IMF staff agreed to provide Ethiopian with $2.9 billion loan to “support home grown economic growth.” 

IMF _ Ethiopia
State Minister for Finance, Eyob Tekaligne

December 12, 2019

Ethiopia is one of the countries in the world with too much debt. Worse, there does not seem to be a way to avoid more debt. It is like a story of a minimum wager with too much but still will have to live on a credit card with too little credit limit.

IMF has announced in a press release on Wednesday, check IMF Press Release No. 19/450, that staff-level agreement is reached to grant Ethiopia a $2.9 billion loan. The IMF board has to approve, and chances are that it will in view of the staff-level agreement.

The Fund will be supported by the IMF’s Extended Credit Facility (ECF) and Extended Fund Facility (EFF) and will be released over three years.

IMF team led Ms. Sonali Jain-Chandra had a working visit to Addis Ababa between October 29, and November 8, 2019, and they held discussions with the Ethiopian government officials, apparently to determine the financial package.

Ms. Jain-Chandra is quoted as stating “The Ethiopian government and the IMF staff team reached preliminary agreement, subject to approval by the Fund’s Executive Board, on policies that could constitute the basis for Ethiopia’s new program supported by the ECF and EFF arrangements. The overall objective of the program would be to support implementation of the authorities’ Homegrown Economic Reform Program.”

As in the traditions of Bretton Woods Institutions, the loan is conditional. The press release by IMF mentioned five pillars. Addressing foreign exchange shortage “durably” is one of the support areas.

And there is an expectation of transition to what IMF calls “a more flexible exchange rate regimes.” It has been rumored for several weeks now that Ethiopia was told to devalue its currency again. In 2017, Ethiopia devalued the currency exchange rate by 15%.

The multilateral institution framed the other “support” area as “Strengthening oversight and management of state-owned enterprises,” and the goal is “to contain debt vulnerability.” 

Abiy Ahmed led government has already introduced, albeit outcry from experts, measures to “privatize government-owned enterprises” (a liberal language to denote selling national public assets and it’s a virtue in liberal world view). To that end, Abiy has formed a council drawn from respected public figures in a move that seems to make selling assets like Ethio-Telecom and Ethiopian Airlines, among other things, appear not necessarily a bad thing. Now IMF will provide support in that area too.

Strengthening local revenue mobilization and expenditure efficiency, “the financial sector to support private investment and modernize the monetary policy framework” and financial safety nets are other support areas for the IMF.

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