The International Monetary Fund (IMF) is considering Ethiopia for a new funding scheme following the successful peace deal that brought the two-year war in northern Ethiopia to an end.
The federal government of Ethiopia and the Tigray People’s Liberation Front (TPLF) signed a peace agreement on November 2, 2022, in Pretoria, South Africa, which was applauded by the international community, including the UN and western countries.
“We welcome the signing of the peace agreement,” an IMF spokesperson said in a message to Reuters on Friday. The Fund welcomed the signing of a peace accord in Ethiopia as “a critical step towards restoring lasting peace and stability” and said discussions were ongoing on reforms that could lead to a potential fund program.
Fund staffs have ongoing discussions with the authorities on their reform plans, which could lay the groundwork for negotiating a potential new Fund program.”
If it materializes, the Fund’s recommitment will be a significant relief for Ethiopia’s economy, which has been gasping for a fiscal breathing space. The war has consumed billions of dollars, and the state’s growth forecast has been slashed by over 3 percent. The IMF’s GDP forecast for Ethiopia also dropped to 3.8 percent for 2022/23, down from 6.2 percent when the war broke out in 2020.
The Ethiopian government, in particular, could not access external financial sources after its external debt hit the limit at 28 billion dollars. The IMF withheld a three billion-dollar loan after the war broke out in northern Ethiopia. IMF’s Extended Fund Facility (EFF) and Extended Credit Facility (ECF) windows for Ethiopia were also phased out.
Last October, official delegates of Ethiopia, led by Ahmed Shide, minister of finance, Yinager Dessie (PhD), governor of the central bank; and Teklewold Atnafu, monetary policy advisor to Prime Abiy Ahmed (PhD), met with the IMF, the World Bank, and the G20.
Ethiopia has been requesting the G20 and IMF for debt restructuring and the resumption of a new IMF program for Ethiopia. However, the IMF, the World Bank, and the West have been withholding the schemes because of political instability in Ethiopia.
The creditors committee formed to evaluate Ethiopia’s request for debt restructuring, which is co-chaired by France and China, also could not reach consensus.
After days of intensive discussion, the Ethiopian delegates returned last week without positive responses.
However, the Fund has already noted the Ethiopian government’s agreement to put a peaceful end to the two-year war with the TPLF.
