IMF Notes “substantial Progress” In Dragging Ethiopia Bailout Negotiations

The federal government’s long wait for a financial package from the International Monetary Fund (IMF) continues as virtual and in-person negotiations have yet to bear fruit.

Julie Kozack, IMF communications head, stated on Thursday that engagements with Ethiopian authorities are progressing but did not mention how close negotiations were to a definite decision.

She recalled a two-week IMF mission visit to Addis Ababa in late March, subsequent talks during the World Bank/IMF Spring Meetings in Washington, and virtual meetings in the weeks since have made “substantial progress towards establishing how the IMF can support the authorities’ economic program.”

Ethiopia requested debt restructuring in 2021 following petitions for fresh funds for the first iteration of the government’s homegrown economic reform initiative in 2019. The authorities are currently in the process of launching the second economic reform program but funding from the IMF remains elusive.

Sources say the IMF’s continued demands for the devaluation of the Birr or the floating of Ethiopia’s fixed exchange rate regime as preconditions for the much-needed financing are holding up the talks.

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“Ethiopia’s forex problems will be fully addressed within the coming two years, at maximum,” said an Ethiopian official, who spoke last week on condition of anonymity.

There is speculation in the market that the government is considering its options in exchange for the IMF bailout.

“As these discussions evolve, we will continue to provide updates,” said Kozack.

The national investment advisory board chaired by the Prime Minister passed new legislation last month that opens the import, export, wholesale, and retail trade businesses to foreigners. Pundits say the move was partly influenced by negotiations with the IMF.

During her press brief, Kozack warned that economies need to work on shock resilience in a “shock-prone world.”

According to IMF research, cooperation is critical, but greater protectionism could lead to fragmentation, and even split nations into rival blocs just as fresh shocks expose the global economy’s fragility.

“Our studies indicate that in global losses from fragmentation, there’s quite a wide range. They can range from 0.2 percent of global GDP all the way up to 7 percent of global GDP. And to put that in context, 7 percent of global GDP, which would be kind of severe fragmentation, represents the combined size of Germany and Japan’s economies. And, of course, the cost of fragmentation would be higher should there be, for example, technological fragmentation in addition,” said Kozack during the press brief on May 16, 2024.