Ethiopia Wins Financing Assurances Key to Unlock New IMF Loan
Ethiopia has received financing assurances from its official creditors, which will help expedite the approval of a new loan from the International Monetary Fund (IMF). The country has been in talks with the IMF for over two years for a new program, following a civil war and economic decline. Ethiopia aims to restructure its external debt using the G20's Common Framework mechanism. The IMF has not yet announced a staff-level agreement for Ethiopia.
Ethiopia’s official creditors have granted financing assurances to the country to help fast-track approval of a new loan by the International Monetary Fund’s executive board, according to people familiar with the matter.
Members of an official creditor committee held a meeting last week to approve the financing assurances, according to two of the people, who asked not to be named because the talks are private. Financing assurances mean that bilateral creditors such as the Paris Club and China provided certainty that they will restructure their loans to Ethiopia in a way that’s consistent with the fund’s program.
The Horn of Africa nation has been in talks with the IMF for more than two years about a new program after its latest loan went off track in 2021, as a civil war soured investor sentiment and sapped economic growth. Ethiopia said it stopped making payments on its overseas bond in December, becoming the latest emerging-market sovereign to default.
The Paris Club didn’t immediately respond to comment. Officials from Ethiopia’s finance ministry and the central bank didn’t reply to a request for comment.
Creditor countries usually provide financing assurances after a staff-level agreement on a new program is publicly announced by the Washington-based IMF. The assurances are required per IMF rules for a loan to be approved by the fund’s executive board and kick off the disbursements.
The IMF hasn’t announced a staff level agreement for Ethiopia. An IMF spokesman said that fund has made progress with Ethiopian authorities and development partners on a program, without commenting on financing assurances or a staff-level agreement.
Ethiopia aims to restructure billions of dollars in external debt using the Group of 20’s Common Framework mechanism, which seeks to coordinate talks between official, commercial and private creditors. The official creditor committee of Ethiopia is co-chaired by France and China, and provided a debt standstill to the country until the end of 2024. Italy, Japan, India, and Saudi Arabia are among other members of the committee.
The Common Framework, which has been supported by the IMF, has gained a reputation for working painfully slow, a result of misaligned expectations of the various creditors, particularly between China, the Paris Club and bondholders. Ceyla Pazarbasioglu, head of the fund’s Strategy, Policy and Review Department, said Wednesday that the process is , and that “Ethiopia is going to be quick.”
