Prime Minister Abiy Ahmed And The Managing Director Of IMF Kristalina Georgieva At Addis Ababa February 8 2025 For A Two Day Official Working Visit Photo By FBC
Ethiopia’s Economic Reform Journey: Progress Amidst Persistent Challenges, IMF Report Highlights
ADDIS ABABA – Ethiopia’s ambitious “Homegrown Economic Reform Agenda” is showing promising initial results, yet significant headwinds persist, according to the latest assessment from the International Monetary Fund (IMF). The IMF Executive Board recently concluded its third review under the Extended Credit Facility (ECF) arrangement for Ethiopia, greenlighting a disbursement of approximately US262.3million.This brings the total disbursed under the arrangement to about US 1.873 billion, as reported by the IMF’s Press Release on July 2, 2025.
The IMF’s findings, detailed in their 2025 Article IV Consultation and the third review of the ECF arrangement (IMF Press Release, July 2, 2025), commend Ethiopia’s “strong progress” in implementing macroeconomic reforms since the ECF approval in July 2024. Key indicators such as inflation, export growth, and international reserves have reportedly performed “better than expected.” The transition towards a more flexible exchange rate regime has also proceeded with “little disruption,” leading to a correction in real exchange rate misalignment and improved foreign exchange availability. Measures to modernize monetary policy, mobilize domestic revenues, enhance social safety nets, strengthen state-owned enterprises (SOEs), and anchor financial stability are also yielding “encouraging results,” according to the IMF.
However, the path ahead remains fraught with challenges. The Addis Standard highlighted on July 16, 2025, that the IMF cautions Ethiopia’s reform program faces “mounting risks” from declining foreign aid, fragile security conditions, and a persistent parallel currency market. IMF Deputy Managing Director Nigel Clarke noted that “the outlook remains subject to downside risks given security challenges and declining donor support.” Foreign aid, a crucial component of Ethiopia’s development financing, has seen a sharp decline, falling from 12% of GDP a decade ago to below 4%. The IMF has warned that further cuts could have “significant humanitarian implications” (Addis Standard, July 16, 2025).
Despite strides in foreign exchange reform, the IMF points to “enduring problems” in the currency market. A 2.5% commission on FX sales by the central bank, limited interbank liquidity, and high transaction costs continue to sustain a notable parallel market premium, which was observed to have widened again in early 2025 (The Reporter Ethiopia, May 31, 2025; IMF Staff Conclude Article IV Discussions, May 30, 2025). These distortions, the IMF suggests, complicate macroeconomic stability efforts and undermine investor confidence. Ethiopia’s narrow export base, with goods exports accounting for less than 6% of GDP in 2023/24, further exposes it to balance of payments risks (Addis Standard, July 16, 2025).
On the debt front, while Ethiopia is nearing a debt relief agreement with official creditors, external debt payments are projected to rise under revised terms starting next year, as indicated by Finance Minister Ahmed Shide to parliament (Addis Standard, July 16, 2025). The IMF emphasizes the critical need for continued revenue mobilization to create space for essential social and development spending, advocating for income, excise, and property tax reforms and efforts to broaden the tax base (IMF Press Release, July 2, 2025).
The IMF’s overall assessment underscores a cautious endorsement of Ethiopia’s reform efforts. While acknowledging commendable progress and better-than-expected macroeconomic outcomes in the initial phase of the program, the Fund stresses that “maintaining reform momentum will be key to consolidating gains and securing sustainable high growth” (IMF Staff Conclude Article IV Discussions, May 30, 2025). The onus remains on Ethiopia to navigate these complex challenges and ensure that the economic improvements translate into tangible benefits for its population, including higher earnings, more productive jobs, and enhanced public services (World Bank, Ethiopia Overview).
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