BY WORKU BEACHEW

The long-standing relationship between Ethiopia and the International Monetary Fund (IMF) has been strengthening in recent years, culminating in the visit of IMF Managing Director Kristalina Georgieva. This visit arrives at a crucial juncture, as Ethiopia is implementing substantial economic reforms aimed at accelerating growth, promoting private sector development, and securing long-term prosperity for its citizens. These reforms are in alignment with the country’s broader goal of transitioning to a more resilient economy, a vision that the IMF is fully committed to supporting through both financial assistance and technical expertise. The Managing Director is in Ethiopia on February 8 and 9, where she is to meet with the Prime Minister Abiy Ahmed and other high-ranking officials. In light of this significant visit, The Ethiopian Herald is honored to invite Managing Director Kristalina Georgieva to share her insights on the visit and its implications with our esteemed readers.

What is the purpose of your visit to Ethiopia?

I very much look forward to visiting Ethiopia at a very important time for the country and for our partnership.

Over the past several months, Ethiopia has been implementing a set of comprehensive economic reforms that the authorities have put in place to boost growth and exports, restore debt sustainability and lower inflation. An important goal of these reforms is to empower entrepreneurship and private sector development, to create more and better jobs and provide higher incomes for millions of people.

We are partnering with the government to support this homegrown reform effort by providing $3.4 billion low-cost financing to Ethiopia under a 4-year Extended Credit Facility arrangement. This program has been in place since July, and about half of the financing has already been disbursed. It is part of a larger $10.7 billion support package, which also includes financing from the World Bank and debt relief from foreign creditors.

During my visit I hope to see firsthand how things are going so far, what the next steps are, and how the IMF can continue to help. I am looking forward to hearing from the Ethiopian authorities and interacting with representatives of the private sector and students, about how the reforms are progressing and how we can all work together to maximize investments, jobs, and growth for the benefit of all Ethiopians.

The IMF is making periodic reviews on Ethiopia’s reform implementation. What are the outcomes of the reviews?

We completed the second review of our program in mid-January, and I am delighted to say it is off to a strong start! Decisive actions of the Ethiopian authorities allowed us to move forcefully with our contributions — we disbursed US$1 billion immediately after the IMF Executive Board approved the program on July 29, 2024, then US$341 million after the approval of the first review in October last year, and another US$248 million on approval of the second review on January 17, 2025.

Substantial progress has been made on debt restructuring negotiations under the Common Framework. In Ethiopia, we have been able to move faster than in previous cases, thanks to the continued efforts of the authorities and specific reforms to IMF policies that ensured (i) a quicker approach to assessing the financing assurances needed for our Executive Board to approve program reviews, and (ii) more nimble data provision by IMF staff to all negotiating parties, to facilitate and accelerate those negotiations.

The government took a decisive step last July to adopt a more flexible exchange rate. That removes a key barrier to investment and exports and alleviates the shortages of foreign exchange that were limiting imports, with high costs for ordinary people. So far, this transition has been going well. We have seen a significant reduction in the premium in the parallel exchange market and foreign exchange has become more readily available. Importantly, this was accomplished without inflation rising—in fact, it has been coming down! That is due in part to smart policies that have kept monetary and financial conditions tight, and to measures that helped to contain the prices of essential imports such as food commodities.

The government’s holistic approach and strong commitment to reforms delivers progress on many fronts. The National Bank of Ethiopia has advanced the modernization of its monetary policy framework, with a focus on achieving low and stable inflation. The authorities have taken significant steps in mobilizing government revenues for critical spending priorities, allowing them to expand the social safety net to protect vulnerable households. There are tangible steps towards strengthening state-owned enterprises and the financial sector.

There is still a lot to do. Only by maintaining the momentum of reforms will people see steady and tangible improvements in terms of availability and quality of jobs, improved livelihoods, and equitable access to services.

What is your outlook for the Ethiopian economy? Can the economic development required be realized? How do you see the road ahead?

It is important to recognize the terrific work that is being done under the government’s comprehensive economic policy reforms. Ethiopia’s economic agenda is ambitious, and its successful implementation holds the promise of delivering prosperity to the people.

The Home Grown Economic Reforms program is rightly focused on ensuring macroeconomic stability and developing the private sector to provide a solid foundation for creating jobs and future prosperity. With a large, dynamic, and young population, there is huge potential for growth, and the authorities’ reform package can help harness that.

Staying the course may not always be easy. Inflation is still high, and many Ethiopians are facing food insecurity and conflict. Attention to the most vulnerable people while moving forward with reforms is essential for gaining the support of the population and succeeding in the transformation that is now underway. I am confident that Ethiopia has the ability do it.

What are some key reform priorities?

Let me highlight three priorities:

• First, stay the course in implementing a flexible exchange rate regime. This means continuing to allow the Birr to move freely and working to improve the functioning of foreign exchange markets to reduce transaction costs.
• Second, mobilize government resources. This is essential to ensure that Ethiopia is in a position to finance vital social and development needs—such as health and education—in a sustainable way. Broadening the tax base is essential in this regard. The government’s recently issued National Medium-Term Revenue Mobilization Strategy provides a good roadmap.
• Third, gradually move to market-determined government financing. Rather than channeling resources to the government at artificially low costs—for example, requiring banks to purchase Treasury bonds at a low interest rate—lenders should be allowed to allocate resources to the most productive economic investments with the highest returns. Offering better financial returns will also encourage savings, expanding the resources available for both government and private sector investments. The authorities are already taking the right steps, for example by working to ensure that the Treasury bill market functions efficiently with interest rates that move freely. We welcome their commitment to do more in the months ahead.
• In all of these areas, the IMF and Ethiopia’s other development partners have been providing support through capacity development. We are committed to continue working with the authorities on these reforms.

What impact can fiscal discipline have on social spending? How will it be mitigated?

Social spending is essential to promote inclusive growth and protect the most vulnerable. Through careful policy design it is possible to balance efforts to ensure fiscal sustainability while protecting social spending. And increasing social spending is a critical component of Ethiopia’s reform program: in fact, under the program, pro-poor spending—which includes spending on health, education, agriculture, roads, and food security— is set to almost double from around 2 percent of GDP to over 4 percent of GDP over the course of the next four years. That will bring Ethiopia’s social spending levels closer to those of peer countries.

The program also seeks to expand the social safety net by setting minimum spending targets on the Productive Safety Net-Program (PSNP). Research shows that well-targeted cash transfer programs like the PSNP are efficient and cost-effective ways to provide support to those who need it most.