IMF Approves $464 mln Disbursement for Ethiopia, Urges Tighter Monetary Policy

July 3, 2026
By Mintesinot Nigussie

The Executive Board of the International Monetary Fund has completed the fifth review of Ethiopia's 48 month Extended Credit Facility programme, approving an immediate disbursement of about 464 million US dollars while urging the country's central bank to maintain a tight monetary policy and stand ready to tighten further if inflationary pressures intensify.

The latest disbursement, equivalent to SDR 342.05 million, will help Ethiopia meet its balance of payments and fiscal financing needs. It brings total IMF disbursements under the programme to about 2.647 billion US dollars. The Fund also approved about 200 million US dollars in additional financing to help Ethiopia cope with economic pressures stemming from the war in the Middle East, particularly the sharp rise in imported fuel prices.

The four year programme, approved in July 2024 with financing of about 3.4 billion US dollars, supports Ethiopia's Homegrown Economic Reform Agenda aimed at addressing macroeconomic imbalances and creating conditions for private sector led growth.

The IMF said programme implementation has remained broadly on track, with all quantitative performance criteria and most indicative targets met during the review period. Although the government's contribution to the Productive Safety Nets Programme fell short of programme targets, higher than expected donor financing ensured support to beneficiaries exceeded planned levels, including additional assistance for urban households affected by the external shock.

The Fund said maintaining a tight monetary policy remains appropriate to anchor inflation expectations and called on the National Bank of Ethiopia to tighten policy further if second round inflationary pressures emerge.

It also welcomed the central bank's efforts to improve the functioning of Ethiopia's foreign exchange market, including partially easing exchange restrictions, developing the interbank foreign exchange market, enforcing banks' net open foreign exchange position limits and promoting greater competition among commercial banks.

The IMF further called on the central bank to develop a strategy to improve its gold market operations and ultimately withdraw from the market in line with the country's foreign reserve accumulation objectives.

On fiscal policy, the Fund said tax revenue growth and overall fiscal performance have remained strong, while emphasising the need for prudent expenditure management and continued tax administration reforms to safeguard fiscal sustainability and maintain priority public spending.

It also encouraged the government to continue phasing out fuel subsidies while protecting vulnerable households, arguing that the move would create additional fiscal space for development and social spending.

The IMF said Ethiopia has continued to make progress in restructuring its external debt, having signed several agreements with official bilateral creditors and advanced negotiations with commercial lenders. It welcomed the agreement in principle reached with Eurobond holders, saying financing assurances received remain consistent with programme requirements.

"The authorities continue to make progress in advancing their economic reform agenda, with favourable macroeconomic outcomes despite a challenging environment," Nigel Clarke, IMF Deputy Managing Director and acting chair of the Executive Board, said in a statement.

He said continued reforms would be essential to sustain macroeconomic stability as the conflict in the Middle East poses a significant external shock to the Ethiopian economy.

Clarke also called for continued reforms to strengthen financial sector oversight, improve financial safety nets, modernise the monetary policy framework and enhance the independence of the National Bank of Ethiopia through governance reforms, including the appointment of independent board members and the central bank's recapitalisation.

Source: FSX Business News