Ethiopia to Secure Second Tranche of IMF Funding

Ethiopia to Secure Second Tranche of IMF Funding

Ethiopia is set to receive close to 210 million dollars as the second disbursement of a three-billion-dollar programme with the International Monetary Fund (IMF), pending approval by its executive board. The funding, which is part of the financial package that was approved in December 2019, is expected to support the country’s balance of payments.

This comes after the IMF and Ethiopian authorities reached a staff-level agreement for the first review of the Extended Credit Facility-Extended Fund Facility, lending given to correct medium-term balance of payments imbalances from structural impediments in the economy.

In its first review of the programme, the IMF staff estimates the economy’s growth to have been considerably depressed in the fourth quarter of the last fiscal year and projects gradual recuperation to begin in late 2021 due to the impact of the Novel Coronavirus (COVID-19). Lawmakers in the country had approved a supplementary budget of 48.7 billion Br in May.

The IMF also approved the request of the Ethiopian government for 415 million dollars through the Rapid Financing Instrument without ex-post conditionality, conditions to be carried out after receiving the aid. The loan obtained through this facility will be paid back over 10 years at an interest rate of zero.

The IMF team recommended requesting additional debt rescheduling from external creditors to ease external debt service pressures. Ethiopia had received debt relief from the G-20 countries a few months ago as part of the support due to the shock of the pandemic. While acknowledging the need to deviate from macroeconomic reform objectives in the near term, the IMF advised resuming reform as the shock subsides.

Slowing down the growth of base money through the central bank starting from the second half of 2020 was also part of the recommendations. This is expected to help subdue the elevated inflation in the country, according to the presser from the IMF.

When the IMF programme was approved last year, the base money supply growth for the end of June 2020 was programmed to be 12.5pc year-on-year. However, as the pandemic struck, the base money supply picked up to reach close to 23pc at the end of June, as the central bank injected a significant amount of money to support the financial sector.

Headline inflation, an indicator of the cost of living, has been hovering above 20pc in the last five months, registering the highest rate in seven years. In June, the rate had shown a two-percentage-point rise reaching 21.6pc. Last month, food inflation registered a considerable three-percentage-point rise to 23.1pc, while non-food inflation recorded a slight increase of 0.7 percentage points to 19.7pc.