The World Bank approved a $1.5 billion financing package to support cash-strapped Ethiopia’s economic reform program after officials eased restrictions on the local currency.
The decision comes after the Horn of Africa country broke with decades of management of the birr, a move that unlocked the long-running financing negotiation with international lenders, including the International Monetary Fund.
The World Bank financing is the first in a series and will include a $1 billion grant and a $500 million loan, the Washington-based lender said Tuesday.
“This operation supports the Government of Ethiopia at a critical time in its efforts to accelerate poverty reduction and shift to more inclusive, sustainable and private-sector-led growth,” said the World Bank Country Director for Ethiopia Maryam Salim.
“It is important that there is a strong focus on protecting the poor and vulnerable from the costs of economic adjustment.”
The Bank of Japan is raising its key interest rate for the second time in 17 years
Africa’s second most populous nation is in urgent need of financial aid as it overcomes a severe economic crisis marked by rapid inflation.
The World Bank said it expects to provide an additional $6 billion in new commitments over the next three fiscal years.
The IMF board on Monday approved a four-year loan program of about $3.4 billion to support reforms, with about $1 billion disbursed immediately.
Analysts had said the IMF required several reforms to Ethiopia’s state-controlled economy, including a floating currency, in order to unlock funding.
Wounded in recent years by multiple armed conflicts, the Covid pandemic and climate shocks, the country has an external debt of around $28 billion and faces high levels of inflation around 20% and a shortage of foreign exchange reserves.
Yen rises ahead of Bank of Japan decision as rate hike talks swirl
As part of the shift to a market-based exchange rate regime, the National Bank of Ethiopia said banks would be able to buy and sell foreign currencies to their customers and to each other.
When he took office in 2018, Prime Minister Abiy Ahmed pledged to launch reforms of Ethiopia’s closed and state-dominated economy, but progress has been slow.
The landlocked country’s credit rating was downgraded to partial default in December by international agency Fitch after it missed a $33 million coupon payment on a Eurobond.
The two-year conflict in the northern Tigray region that ended in November 2022 has led to the suspension of many development aid and budget assistance programs.
Source: AFP