Ethiopia Central Bank Removes Foreign Currency Restrictions to Secure IMF Funding
In a significant move, Ethiopia’s central bank has lifted restrictions on the foreign currency market, paving the way for crucial funding from the International Monetary Fund (IMF) and progress on a long-awaited debt overhaul.
Last December, Ethiopia became the third economy on the African continent in as many years to default on its debt, due to high inflation and chronic foreign currency shortages. The country has been in talks with the IMF since last year to establish a new lending program, following the abandonment of the previous fund-supported program in 2019 due to conflict in the northern region of Tigray.
According to a statement from the central bank, banks can now buy and sell foreign currencies freely at negotiated rates, with limited interventions from the National Bank of Ethiopia. As part of the reforms, Ethiopia is set to receive $10.7 billion in external financing from various development partners, including the IMF, World Bank, and creditors.
The IMF and World Bank are providing exceptional funding support, which will be among the highest such allocations in Africa. Despite progress being slowed by the civil war in the Tigray region, Ethiopia requested a debt restructuring under the Group of 20’s Common Framework process in early 2021.
The recent economic reforms unveiled by the government in Addis Ababa, such as the adoption of an interest rate-based monetary policy, are seen as crucial steps in the negotiations for a new IMF reform program.
Analysis:
The lifting of foreign currency restrictions in Ethiopia is a positive development that could help the country secure much-needed funding from international organizations like the IMF and World Bank. This funding will not only address the country’s debt issues but also support its efforts to stabilize the economy, combat inflation, and strengthen its financial market.
For investors, this news could signal potential opportunities in Ethiopia’s market as the country implements reforms and receives external financing. It is essential to monitor the situation closely and assess the impact of these changes on the country’s economic outlook and investment climate.