Ethiopia eases foreign exchange restrictions in bid to get IMF financing, debt restructuring
Date
7/29/2024 5:29:30 AM
(MENAFN) On Monday, Ethiopia’s central bank took a significant step towards financial stabilization by announcing the removal of restrictions on the foreign exchange market. This pivotal move is aimed at securing funding from the International Monetary Fund (IMF) and advancing the process of restructuring its overdue debt.
Ethiopia, a nation grappling with high inflation and a persistent foreign currency shortage, faced the risk of defaulting on its debt in December. This placed it among the three African economies to have experienced such a crisis in the past three years. In response, the Ethiopian government has been engaged in negotiations with the IMF since last year to secure a new financing program. This follows the abandonment of the previous IMF-supported program in 2019, which was disrupted by the conflict in the northern Tigray region. That conflict was resolved with a peace agreement in November 2022.
In its recent statement, the central bank declared that banks will now be permitted to engage in foreign currency transactions with their clients at rates that are freely negotiated. The National Bank of Ethiopia will only intervene within specified limits to maintain market stability. This reform is expected to facilitate a more flexible and open foreign exchange market, which is crucial for economic recovery.
Additionally, as part of these reforms, Ethiopia is set to receive USD10.7 billion in external financing from its development partners. Mamo Mehertu, the governor of the Central Bank of Ethiopia, confirmed this development in a video posted online, highlighting the substantial financial support that will aid the country in navigating its economic challenges and moving forward with its debt restructuring efforts.
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