Ethiopia’s ambitious economic reform program under a $3.4 billion International Monetary Fund agreement confronts mounting challenges from declining international donor support, despite meeting key performance targets.
The IMF praised Ethiopian authorities for implementing comprehensive economic adjustments including subsidy reductions, monetary policy tightening, and tax system reforms, while warning of emerging risks that could complicate progress.
Deputy Managing Director Nigel Clarke cautioned that security challenges and reduced donor funding create downside risks for the reform outlook, potentially hampering debt restructuring negotiations with international creditors.
Foreign assistance to Ethiopia has declined dramatically from 12% of gross domestic product a decade ago to under 4% currently, with further reductions anticipated as agencies including USAID scale back operations.
The funding reduction occurs as humanitarian needs intensify, with one in five Ethiopians requiring food or emergency assistance during 2025. United Nations response programs remain significantly underfunded, relying on temporary operational waivers.
Ethiopia has achieved notable progress in foreign exchange market liberalization, though structural challenges persist including a 2.5% central bank commission on foreign currency sales, limited interbank liquidity, and elevated transaction costs.
These factors have pushed parallel market premiums to 15%, indicating continued foreign exchange supply constraints despite reform efforts. The IMF urged acceleration toward modern policy-rate-based monetary frameworks with improved communication strategies.
Inflation has decreased faster than projected, supported by tighter monetary policy and credit limitations. However, privatization delays and weaker foreign direct investment flows could complicate efforts to rebuild foreign reserves.
The improved export outlook shows goods and services exports forecast to reach 12% of GDP in fiscal year 2024/25, up from 9.6% during the previous IMF review period, suggesting enhanced external competitiveness.
Ethiopia received a $262 million disbursement this month from the IMF program, supporting continued reform implementation amid challenging external conditions. Aliyu Abdullahi Ibrahim
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