The International Monetary Fund (IMF) halted loans and aid to Ethiopia following the outbreak of war in northern Ethiopia in 2019.
After the peace agreement ended the two-year conflict, Ethiopia requested a new loan from the IMF, including the previously blocked funds. However, repeated discussions did not yield the expected results.
Before the IMF could approve the loan, the Paris Club, a group of 20 developed creditor countries, needed to evaluate and approve Ethiopia’s request.
Bloomberg reported that the Paris Club assessed Ethiopia’s repayment capacity and granted permission to the IMF to proceed.
In addition to the Paris Club, China, a major lender to Ethiopia, has also approved the provision of additional loans through the IMF.
According to Bloomberg, unnamed Paris Club members confirmed that creditor countries have agreed to restructure their loans to Ethiopia.
The report highlighted that following the agreements from the Paris Club and China, Ethiopia will receive a new loan from the IMF.
In a recent annual report to the House of Representatives, Prime Minister Abiy Ahmed announced that Ethiopia might secure a $10 billion loan from the IMF and the World Bank.
Minister of Finance Ahmed Shide, while presenting his institution’s nine-month plan, stated that Ethiopia received $4.5 billion in loans and grants, with 54 percent being aid and $849 million in loans.
The World Bank has invested $1 billion in Ethiopia from these funds, reflecting the strong relationship between the two entities.
Currently, Ethiopia’s foreign debt stands at $29 billion, with half owed to China. Ethiopia is seeking an extension of the loan repayment period.
Prime Minister Abiy Ahmed mentioned in a discussion with tax-paying businessmen that Ethiopia has repaid $10 billion in loans over the past five years.
Despite this, other creditors and lending institutions, excluding China, have been hesitant to extend the repayment period.
A month ago, the Ministry of Finance announced a new aid and loan agreement with the World Bank worth $1.72 billion (97 billion birr).
Ethiopia is also negotiating a $10 billion loan from the World Bank and the IMF. These negotiations have been challenging, with international lenders setting preconditions such as the devaluation of the birr against the USD and other policy adjustment.
Ethiopia’s economy faces multiple challenges, including the aftermath of the war, the COVID-19 pandemic, climate change, rising living costs, and international pressures.
Despite these obstacles, the recent approvals from the Paris Club and China mark a significant step towards financial stability and economic recovery for Ethiopia.
