Ethiopia will save $4.9 billion from its debt restructuring exercise, State Finance Minister Eyob Tekalign said on Friday.
The authorities in East Africa’s biggest economy have been in negotiations to reduce its debt-repayment burden by lengthening maturities following agreement to reform its programme with the International Monetary Fund.
The macroeconomic reforms included exchange rate liberalisation and the establishment of a new interest-rate based monetary policy framework.
Ethiopia's central bank on Monday removed restrictions on the foreign currency market, a crucial step towards securing funding from the International Monetary Fund and making progress on a long-delayed debt overhaul.
Foreign currency shortages
Last December, the Horn of Africa nation, which is struggling with high inflation and chronic foreign currency shortages, became the third economy on the continent in as many years to default on its debt.
It has been in talks with the IMF since last year to establish a new lending programme, after the last fund-supported programme agreed in 2019 was abandoned due to conflict in the northern region of Tigray that ended with a November 2022 peace deal.
"Banks are henceforth allowed to buy and sell foreign currencies from/to their clients and among themselves at freely negotiated rates, and with the NBE (National Bank of Ethiopia) making only limited interventions," the central bank said in a statement.
The approval of the loan agreement allows for the immediate disbursement of around $1 billion, the IMF said in a statement.
Funding and restructuring
The agreement follows extensive talks between Ethiopia and the IMF to secure more funding and restructure the country’s debt.
As part of the discussions, Ethiopia has taken significant steps, such as the central bank allowing the country’s currency to float, which has led to a 30% devaluation of the Ethiopian birr against the US dollar.
“The recent measures to decisively tackle macroeconomic imbalances, including moving to a market-determined exchange rate, removing current account restrictions, and modernizing the monetary policy framework to control inflation are critical steps forward,” the IMF said in a statement.
In return for these measures, Ethiopia is expected to receive a $10.7 billion loan package from the IMF, the World Bank, and other creditors.
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