World Bank and IMF approve financing packages for Ethiopia

The World Bank said on Tuesday its board had approved a $1.5bn financing package for Ethiopia, as the Horn of Africa country tries to push ahead with a long-running debt restructuring.

Ethiopia secured a four-year, $3.4bn programme from the IMF on Monday, hours after the country’s central bank floated its birr currency, paving the way for its debt overhaul to move forward.

The World Bank’s development policy operation facility consists $1bn grant and the institution’s International Development Association (IDA) will also provide $500m in concessional credit to Ethiopia, the global lender said in a statement.

“This policy operation supports home-grown reforms that will ultimately help the country transition to a more inclusive economy that allows the private sector to contribute more strongly to growth. While strengthening the financial sector, expanding trade options, and improving fiscal transparency, this engagement will also boost protections for poor and vulnerable households during periods of economic change,” it said. 

"Successful implementation of these reforms can help the country reach its full potential so more Ethiopians can thrive. Importantly, there is a strong emphasis on protecting poor and vulnerable people from the costs of economic adjustment and expanding opportunities for them to participate in the economy," said Maryam Salim, World Bank country director for Eritrea, Ethiopia, South Sudan and Sudan.

“IDA expects to provide around $6 billion in new commitments over the next three fiscal years and support economic reforms through fast-disbursing budget support,” the statement said.

The World Bank is one of Ethiopia’s largest providers of development finance. 

Ethiopia sought to restructure its sovereign debt in 2021, under the Group of 20 Common Framework initiative to offer relief to developing nations, but progress was slowed by a civil war in the northern region of Tigray that ended the following year.

Signs of fresh momentum in Ethiopia’s winding debt restructuring path followed the completion of debt overhauls by Chad and Zambia under the Common Framework. Ghana is at the tail end of its own debt restructuring under the initiative.

Ethiopia’s development partners have welcomed the move to a market-based foreign exchange rate, but some analysts have said the move could drive up inflation and the cost of living, especially for its poorest residents.

The country also faces a number of other challenges, including the impact of climate change and the post-war reconstruction of Tigray.

Reuters