IMF Country Report No.

24/318

THE FEDERAL DEMOCRATIC

REPUBLIC OF ETHIOPIA
FIRST REVIEW UNDER THE EXTENDED CREDIT FACILITY
November 2024 ARRANGEMENT, REQUEST FOR MODIFICATION OF
PERFORMANCE CRITERIA, AND FINANCING ASSURANCES
REVIEW—PRESS RELEASE; STAFF REPORT; AND STATEMENT
BY THE EXECUTIVE DIRECTOR FOR THE FEDERAL
DEMOCRATIC REPUBLIC OF ETHIOPIA
In the context of the Request of an Arrangement Under the Extended Credit Facility,
the following documents have been released and are included in this package:

• A Press Release including a statement by the Chair of the Executive Board.

• The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on October 18, 2024, following the discussions that ended on
September 26, 2024, with the officials of The Federal Democratic Republic of
Ethiopia on economic developments and policies underpinning the IMF
Arrangements under the Extended Credit Facility program. Based on information
available at the time of these discussions, the Staff Report was completed on
October 7, 2024.
• Statement by the Executive Director for The Federal Democratic Republic of
Ethiopia.

The IMF’s transparency policy allows for the deletion of market-sensitive information
and premature disclosure of the authorities’ policy intentions in published staff reports
and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
PO Box 92780 • Washington, D.C. 20090
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International Monetary Fund

Washington, D.C.

© 2024 International Monetary Fund

 PR 24/383

IMF Executive Board Completes the First Review Under the

Extended Credit Facility (ECF) Arrangement for Ethiopia
FOR IMMEDIATE RELEASE

• The IMF Board completed the first review under the Extended Credit Facility (ECF) for
Ethiopia, allowing the authorities to draw the equivalent of about US$340.7 million (SDR
255.6 million). The ECF was approved by IMF Board in July 2024 and forms part of a
US$10.7 billion support package from development partners and creditors for Ethiopia.

• The Ethiopian authorities have shown strong commitment to their homegrown economic
reform program. Implementation of ECF-supported reforms is advancing well.

Washington, DC – October 18,2024: The Executive Board of the International Monetary

Fund (IMF) completed today the first review of the 48-month Extended Credit Facility (ECF)
for Ethiopia. The Board’s decision allows for an immediate disbursement of about US$340.7
million (SDR 255.6 million), which will help Ethiopia meet its balance of payments needs. The
completion of the review brings total disbursements under the arrangement to about
US$1.363 billion.

Ethiopia’s ECF arrangement for a total of SDR 2.556 billion (850 percent of quota) or about
US$3.4 billion at the time of program approval on July 29, 2024 (see Press Release 24/291) is
aimed at supporting the authorities’ Homegrown Economic Reform Agenda (HGER) to
address macroeconomic imbalances and lay the foundations for private sector led growth.

All quantitative performance criteria and four out of five structural benchmarks for the first
review have been met. The emergency liquidity assistance framework has been finalized prior
to Board approval with a slight delay from end-September target date.

The implementation of the authorities’ economic program, including the transition to the new
exchange rate regime, has been commendable. The spread between the formal and parallel
market exchange rates has narrowed to low levels, with little sign of disruption to the broader
economy. The supply of foreign exchange is picking up, helping alleviate acute foreign
exchange shortages. Nonetheless, some unmet foreign exchange demand persists as
economic agents are still adjusting to the new FX regime.

Steady implementation of the HGER reform plan will be key to macroeconomic stability and
stronger economic growth. Continued tight monetary policy and elimination of monetary
financing of the government will be key to durably reducing inflation. Expanding social safety
nets is critical to mitigating the impact of reforms on vulnerable people. Maintaining
momentum on domestic revenue mobilization and structural reforms in the SOE sector is
essential to creating sufficient space for social and developmental capital spending.

The authorities continue their efforts to restore debt sustainability. Financing assurances and
adjustment efforts are consistent with IMF policy requirements and program parameters.

Following the Executive Board discussion, Mr. Bo Li, Deputy Managing Director and Chairman
of the Board, made the following statement:
 2

“Ethiopia’s program under the ECF has made a solid start, and the transition to a more flexible
exchange rate has progressed well. Transitional one-off arrangements to address the foreign
exchange (FX) backlog from past fuel imports are in place, relying principally on market
participants with an additional contribution from the National Bank of Ethiopia (NBE). As
economic agents adjust to the new FX regime, reform momentum and clear communication
will need to continue to ensure a fully successful and sustained switch to a floating exchange
rate.

“Continuing to restrict NBE’s FX interventions and additional policy measures to support FX

market development will be critical to enhance market efficiency and deepening. Prudent
macroeconomic policies, including continued tight monetary policy and the elimination of
monetary financing of government deficits are essential to reducing imbalances and shoring
up macroeconomic stability.

“Implementation of the early stages of the authorities’ monetary policy reforms and the shift to
an interest-rate based regime has been encouraging, including the steady uptake of NBE
open market operations. The authorities should step up efforts to improve monetary policy
transmission, including by enhancing treasury bill market functioning. Close supervision and
enforcement of net open position regulations for banks will help address financial sector
vulnerabilities.

“The authorities have embarked on ambitious and comprehensive tax mobilization reforms,
which will be guided by the recently approved National Medium-Term Revenue Strategy. The
new VAT law further streamlines exemptions, expands the revenue base, and strengthens
administration and compliance framework. Sustained tax revenue mobilization reforms are
critical for creating sufficient space for social and development spending needs. The
authorities are implementing plans to expand the targeted social safety net (PSNP), which will
deliver cost-effective and efficient support to vulnerable people and mitigate the social impact
of the FX reform.

“Amendments to the law governing the NBE tabled in Parliament include important
improvements to the NBE’s mandate, functions, and powers. Robust lender-of-last resort
provisions and legal safeguards to central bank autonomy and governance will also be
important.

Continued steps to secure debt treatment is crucial to restore debt sustainability. The progress
made on debt restructuring negotiations under the Common Framework is welcome. The
authorities are working to reach an agreement on debt treatment with official creditors by the
time of the second program review. Negotiations with commercial creditors should follow on
comparable terms. The authorities plan to develop a debt management strategy with Fund
technical assistance.”
 3

Table 1. The Federal Democratic Republic of Ethiopia: Selected Economic Indicators,

2021/22–2028/29

2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Proj. Proj. Proj. Proj. Proj. Proj.

Output

Real GDP growth (%) 6.4 7.2 6.1 6.5 7.1 7.7 8.0 7.8

Prices

Inflation - average (%) 33.9 32.5 26.6 25.0 16.7 12.2 10.4 9.6

General government finances

Revenue (% GDP) 8.1 7.9 7.5 8.4 9.8 10.9 11.3 11.5

Expenditure (% GDP) 12.7 10.8 9.9 11.5 12.4 13.4 13.7 14.0

Fiscal balance, including grants (% GDP) -4.2 -2.6 -2.0 -1.7 -2.1 -2.0 -2.0 -2.0

Public debt (% GDP)1 48.9 40.2 34.7 43.6 39.1 36.0 33.6 31.6

Money and Credit

Broad money (% change) 27.2 26.6 14.1 28.4 28.3 30.6 22.1 21.0

Credit to private sector and state-owned 18.9 24.1 9.7 -14.3 37.9 40.1 24.2 21.1
enterprises (% change)

Balance of payments

Current account (% GDP) -4.0 -2.8 -2.4 -4.4 -3.3 -2.5 -2.1 -1.9

FDI (%GDP) 2.6 2.1 1.6 2.7 3.2 2.9 3.0 3.0

Reserves (in months of imports) 0.8 0.5 0.7 1.4 2.1 2.6 3.5 3.6

External debt (% GDP) 24.0 18.1 15.4 28.9 26.8 24.5 22.5 19.7

Exchange rate

Real effective exchange rate (% change, 10.1 24.0 … … … … … …

end of period, depreciation –)

1/ Public and publicly guaranteed external debt, which includes long-term foreign liabilities of NBE and external debt of Ethio-Telecom. Does not include

expected debt relief.

 THE FEDERAL DEMOCRATIC
REPUBLIC OF ETHIOPIA
FIRST REVIEW UNDER THE EXTENDED CREDIT FACILITY
October 7, 2024 ARRANGEMENT, REQUEST FOR MODIFICATION OF
PERFORMANCE CRITERIA, AND FINANCING ASSURANCES
REVIEW

EXECUTIVE SUMMARY
Context. The Board approved Ethiopia’s request for a four-year arrangement under the
Extended Credit Facility (ECF arrangement) in July 2024 to support the authorities’
program aimed at addressing macroeconomic imbalances, restoring external debt
sustainability, and laying the foundation for high, private sector-led growth. The
transition to a market-determined exchange rate has been progressing well with a
significant narrowing of the spread between the parallel and official market rate and no
signs of significant inflationary pressures, albeit the supply of foreign exchange (FX) to
the market has picked up more slowly than anticipated with some unmet demand
persisting. With economic agents still adjusting to the new FX regime, persistent
uncertainty, and seasonal lows in export earnings, it is too early to draw definitive
conclusions on the full effects of the exchange rate reform.

Policy discussions. The first review of the ECF focused on: (i) developments in the
foreign exchange market, and exchange market policies and reforms; (ii) maintaining a
tight monetary policy stance while improving the Treasury bill market functioning;
(iii) advancing ongoing revenue mobilization and SOE reform efforts to ensure fiscal
sustainability; (iv) strengthening social safety nets to mitigate the impact of reforms on
vulnerable households; and (v) progress in enforcing Net Open Position (NOP) position
limits to contain FX risks in the financial sector and stimulate FX markets.

Program performance. Program performance has been in line with program

commitments and all quantitative performance criteria (QPCs) were met, with an
overperformance in the net international reserves target. Four out of five structural
benchmarks (SBs) were met. The SB on the Emergency Liquidity Assistance framework
was missed but is expected to be implemented in October, after incorporating feedback
from IMF staff. Staff support the modification of the end-December 2024 QPC, the end-
March 2025 IT, and the end-June 2025 QPC on net international reserves to lock in a
part of the overperformance and resetting the SB on finalizing the NBE audit from end-
December 2024 to end-January 2025 to allow time for completion.
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Outlooks and risks. While tightening policies and adjustment will constrain economic activity in the
near term, policy reforms are expected to support higher growth and continued easing of inflation
over the medium term. Key downside risks include persistent inflation or depreciation expectations,
security risks or social unrest, policy slippages and commodity price volatility.

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Approved By Discussions took place in Addis Ababa in September 17–26, 2024.

Annalisa Fedelino (AFR) The mission held discussions with Minister of Finance Ahmed
and Bjoern Rother (SPR) Shide, Governor of the National Bank of Ethiopia Mamo E.
Mihretu, and other senior officials. The staff team comprised of
Messrs. Piris Chavarri (Head), Lee, Tulin; Mses. Daly, Garimella (all
AFR); Messrs. Dielmann (SPR), Hegab (FAD), Gurhy, (MCM),
Rasmussen (IMF Resident Representative in Addis Ababa), and
Messrs. Abiy Hailu and Woldeyes (local economists). Mr. Mengistu
(OED) participated in key policy meetings. Ms. Asgedom assisted
the mission in Addis Ababa. Mr. Morán Arce and Ms. Nsanzimana
assisted with the preparation of this report.

CONTENTS
CONTEXT_________________________________________________________________________________________ 5

PROGRAM PERFORMANCE _____________________________________________________________________ 5

RECENT DEVELOPMENTS _______________________________________________________________________ 6

OUTLOOK AND RISKS _________________________________________________________________________ 11

POLICY DISCUSSIONS _________________________________________________________________________ 12

A. Monetary Policy _______________________________________________________________________________ 12

B. Exchange Rate Policy __________________________________________________________________________ 13

C. Fiscal Policy ___________________________________________________________________________________ 15

D. Debt __________________________________________________________________________________________ 16

E. Financial Sector________________________________________________________________________________ 16

PROGRAM MODALITIES_______________________________________________________________________ 17

STAFF APPRAISAL _____________________________________________________________________________ 19

BOX
1. Assessment of Exceptional Access Criteria and Policy Safeguards on High Combined Credit__ 19

TABLES
1. Selected Economic Indicators, 2020/21–2028/29 ______________________________________________ 23
2a. General Government Financial Operations, 2020/21–2028/29 (Millions of birr) ______________ 24
2b. General Government Financial Operations, 2020/21–2028/29 (Percent of GDP) _____________ 25
3a. Monetary Survey and Central Bank Accounts, 2020/21–2028/29 (Millions of birr)____________ 26
3b. Monetary Survey and Central Bank Accounts, 2020/21–2028/29 (In percent of GDP) ________ 27

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4a. Summary Balance of Payments, 2020/21–2028/29 (In millions of U.S. dollars) _______________ 28
4b. Summary Balance of Payments, 2020/21–2028/29 (In percent of GDP) ______________________ 29
5. Financial Soundness Indicators of the Banking Sector _________________________________________ 30
6. External Financing Requirements and Sources, 2023/24–2027/28 _____________________________ 31
7. Access and Phasing Under the Extended Credit Facility _______________________________________ 32
8. Indicators of Fund Credit, 2023/24–2038/39 __________________________________________________ 33
9. Quantitative Performance Criteria and Indicative Targets, June 2024–September 2025 _______ 34
10. Structural Benchmarks _______________________________________________________________________ 35
11. Debt Composition ___________________________________________________________________________ 37

ANNEXES
I. Risk Assessment Matrix ________________________________________________________________________ 38
II. Letter of Intent ________________________________________________________________________________ 40
Attachment I. Memorandum of Economic and Financial Policies _______________________ 42
Attachment II. Technical Memorandum of Understanding ______________________________ 66

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CONTEXT
1. Ethiopia has made a strong start in implementing deep and comprehensive
macroeconomic reforms. A decisive move to a more flexible exchange rate has eliminated the
large exchange rate overvaluation, the source of deep, long-standing macroeconomic distortions
and protracted balance of payment vulnerabilities. With strong ownership and political commitment
to reforms, the authorities have made significant steps to modernize monetary policy, mobilize
domestic revenue, enhance social safety nets, and anchor financial stability.

2. A 48-month ECF program with access of 850 percent of quota (SDR 2,555.95 million)
was approved in July 2024 to support the authorities’ reform agenda. The arrangement
supports the authorities’ Homegrown Economic Reform (HGER) Agenda to address macroeconomic
imbalances, restore external debt sustainability, and lay the foundations for higher, inclusive, and
private sector-led growth. Key program policies include: (i) moving to a market-determined
exchange rate to help address external imbalances and relieve foreign exchange (FX) shortages;
(ii) combating inflation through modernizing the monetary policy framework, eliminating monetary
financing of the budget, and reducing financial repression; (iii) creating space for priority public
spending through mobilizing domestic revenues; (iv) restoring debt sustainability, including through
securing timely debt restructuring agreements with external creditors; and (v) strengthening the
financial position of state-owned enterprises to tackle critical macro-financial vulnerabilities. The
program is monitored on a quarterly basis for the first and second review to maintain close
engagement during heightened uncertainty.

PROGRAM PERFORMANCE
3. Performance to date has been in line with program commitments. All applicable
quantitative performance criteria (PCs) and indicative targets (IT) for August 16, 2024, were met.
There was overperformance in the accumulation of net international reserves (NIR), limited FX
intervention, and no new provision of advances from the National Bank of Ethiopia (NBE) to the
government (Text Table 1).

4. The authorities have met four out of five end-September structural benchmarks (SBs)
(Table 10). They have already implemented the first quarterly electricity tariff increase under the
multi-year plan. A medium-term revenue strategy has been adopted by the Council of Ministers and
published. The NBE has communicated with banks not in compliance with the regulatory threshold
on FX net open position (NOP) limits and instructed developing time-bound action plans for
compliance. Audited financial statements for SOEs have been completed and published. The
authorities expect to finalize and implement the emergency liquidity assistance directive upon
inclusion of comments from IMF staff. In addition, the FY2021/22 onsite audit of the NBE has been
finalized. Selection of an external auditor for the audit of the FY2022/23 financial statements is close
to being finalized, with the publication of the 2022/23 audited financial statements now expected in
January-2025 (one month delayed, structural benchmark).

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Text Table 1. The Federal Democratic Republic of Ethiopia: Quantitative Performance Criteria
and Indicative Targets, June–August 2024
(in millions of Ethiopian Birr, unless otherwise indicated)

end-Jun 2024 Aug. 16, 2024

Program
Initial level Actual Status
target

Quantitative performance criteria

Net financing of the general government primary balance (ceiling, cumulative change since previous June, 150,000 N/A N/A N/A
includes grants and excludes interest payments) 1/, 2/
Net international reserves (floor, cumulative change since previous June, US$ millions) (end-Jun 2024 is for initial
793 630 1328 Met
level)
Tax revenue collected by the federal government (floor, cumulative sum of tax revenues collected since the 384,000 N/A N/A N/A
beginning of the current fiscal year)

Net NBE claims on the general government (ceiling, cumulative change since previous June) (end-June 2024 for 632,253 0 -10895 Met
initial level)
Continuous performance criteria
Contracting or guaranteeing of external non-concessional debt by the general government, the NBE and public 0 0 Met
enterprises (ceiling, US$ millions) 3/
Accumulation of external payment arrears by the general government, the NBE and public enterprises (ceiling, 0 0 Met
US$ millions)
Indicative targets
Gross claims on public enterprises by commercial banks (ceiling, cumulative change since previous June) (end-Jun 747,485 N/A N/A N/A
2024 is for initial level) 2/
Government Contributions to Productive Safety Net Programme cash transfers (floor, cumulative sum of 9,000 N/A N/A N/A
4/
contributions since the beginning of the current fiscal year)
Present value of external new debt (excluding IMF credit) contracted or guaranteed by the general government, N/A N/A N/A
the NBE and public enterprises (ceiling for the fiscal year ending June, US$ millions)

Memorandum items:
Official external grants disbursed to the government (US$ millions, cumulative since previous June) 791
Official external loans disbursed to the government (US$ millions, cumulative since previous June) 627
Gross privatization proceeds (US$ millions, cumulative since previous June) 0

Sources: Ethiopian authorities and IMF staff estimates and projections.

1/ Excluding on-lending from the general government.

2/ Excludes commercial banks' claims related to Addis Ababa Housing credit.

3/ The limit is a continuous target (ceiling) on the contracting of non-concessional debt for the fiscal year by the government including general government, NBE and public enterprises (see TMU). An
exception is applied for new non-concessional external debt contracted or guaranteed by the general government for the Koysha dam project, which is capped at USD 950 million over the duration of the
program.
4/ Excludes in-kind benefits and donor contributions. Includes Government of Ethiopia contributions to cash transfers to beneficiaries under the rural Productive Safety Net Programme (PSNP) and Urban
Productive Safety Net Programme (UPSNP).

RECENT DEVELOPMENTS
5. The authorities adopted a more flexible exchange rate regime in late July 2024. This
entailed abolishing distortive current account controls, comprehensively revising FX regulations, ad
implementing a real-time reporting system. Specific subsequent measures include:
• The prohibition on importing 38 specific items was lifted;
• The requirement for foreign exchange (FX) surrender shifted entirely from the NBE to
commercial banks;
• The requirement for importers to open letters of credit (LCs) with banks was eliminated and
the special regime for specified importers (“Franco Valuta”) was removed;

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• The NBE started accepting applications for independent foreign exchange bureaus;
• The NBE issued a directive instructing banks to reflect all FX transaction fees in their bid-
offer spreads, significantly improving market transparency;
• The NBE replaced the previous practice of offering a fixed, substantial premium above the
official exchange rate by offering NBE’s daily indicative selling rate combined with moderate
premium to locally mined gold sold to the central bank and allowed large-scale gold
producers to retain half of the FX generated from gold exports for up to three months, a
two-month extension from the previous limit.

6. The exchange rate more than doubled, the former “official rate” moving from
57.8 birr per US dollar on July 26 to an indicative rate of 119.2 on September 20, but market
liquidity has not responded as strongly as anticipated (Figure 1). NBE publishes an indicative
rate daily before the market opening of the following day; this rate is a daily transaction-weighted
average mid-point of interbank transactions and bank-client transactions. The parallel market spread
to the indicative rate collapsed from 96 percent to around 5 percent over the same period. The
reform substantially corrects real exchange rate overvaluation (estimated at 52 percent in 2022/23
for the previous official exchange rate based on the previous external sector assessment).
Nonetheless, FX market liquidity is still limited: reflected by a wide bid-offer spread and a lack of
activity in the interbank FX market as banks prefer to close their NOPs and satisfy own-client
demand. Activity in the parallel market has reportedly also declined, suggesting a generalized “wait-
and-see” may be prevalent. There is also a seasonal low in export flows, with the main coffee harvest
export season beginning in October. In early September, NBE launched an awareness initiative on
remittance, and several banks launched holiday campaigns to attract remittance flows with a “gift,”
resulting in strong inflows. In some cases, banks transacted at FX rates above the prevailing parallel
market rate.

7. Net FX sales by the NBE amounted to US$ 521 million following the program’s
approval. In an effort to aid in price discovery and improve FX market functioning, the NBE
auctioned US$ 30 million to banks on August 7th. The aggregate weighted average rate for all
successful bids was 107.9 Birr per US dollar. The NBE allocated US$ 491 million to the CBE for
settling LCs related to fuel imports since program approval, within the US$670 million expected. FX
sales were within anticipated amounts up to August 16. By August 16, 2024, FX reserves increased to
US$3.6 billion from US$1.4 billion at the end of June 2024, bolstered by financial support from the
IMF and the WB and reflecting higher than projected gold export proceeds (NBE has a legal
monopsony on the purchase of domestic gold production). Lower-than-projected sales of FX by the
NBE and stronger gold exports in July and August 2024 contributed to the overperformance in
meeting the August 16 NIR target.

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Text Figure 1. The Federal Democratic Republic of Ethiopia: Exchange Rate Developments

NBE Indicative Rate1 (ETB/USD) Posted Exchange Rates of Largest Banks1 (ETB/USD)

Parallel Rate (ETB/USD) Parallel Market Spread (%)

NBE Indicative Rate vs Parallel Rate (ETB/USD) Bank’s Buy-Sell Spread (%)

Source: NBE and IMF Staff

8. Inflation was lower than expected in July and August 2024 (Text Figure 2). Headline
inflation declined to 17.2 percent supported by easing food price inflation (particularly staples) and
the impact of the cap on credit growth (¶8). Anecdotal reports of sharp price increases in select
imported items in Addis Ababa following the exchange rate reform (e.g. cooking oil), have not yet

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led to indications of widespread price pressures. Nonetheless, local authorities in Addis Ababa took
measures to address perceived unwarranted price hikes and hoarding of goods, including temporary
shop closures, while the Federal government imported 50 million liters of edible oil and US$20
million in sugar to boost supply and reduce price pressures, in line with measures to mitigate the
social impact of the reforms foreseen in the Fund-supported program.

Text Figure 2. The Federal Democratic Republic of Ethiopia: Inflation, Money, and Credit
Growth

1/
Claims on non-government includes claims on public enterprises. Domestic credit, net claims on government, and
claims on non-government exclude impact of July 2024 CBE recapitalization.

9. The authorities have been implementing regular open market operations (OMOs) to
absorb excess liquidity. From July-September 2024, the authorities conducted six bi-weekly full-
allotment liquidity absorbing OMOs at the 15 percent policy rate, amounting to 135 billion Birr
(0.9 percent of GDP) with an average of 12 bidders per operation. Several banks have also utilized
the NBE’s overnight lending facility. Meanwhile, although the authorities have committed to
allowing Treasury bill rates to move to market clearing interest rates, transmission from monetary
policy to Treasury bill rates has been limited with weighted average issuance yields remaining
around 10–11 percent, well below the monetary policy rate. Banking sector participation has been
limited. Total Treasury bill issuance from July-September 2024 amounted to 64.1 billion Birr against
a target issuance amount of 137.5 billion Birr (Text Figure 3). Average saving deposit rates remain
unchanged at 8 percent and lending rates continue to average around 14.8 percent.

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Text Figure 3. The Federal Democratic Republic of Ethiopia: Treasury Bills and Open-
Market Operations

10. Monetary conditions remained tight through end-August. Broad money growth was
17 percent y/y, well below inflation, and domestic credit growth (excluding the impact of the CBE
recapitalization) slowed to 13.8 percent y/y (Text Figure 3). As a precautionary measure in the
immediate period after the exchange rate reform, the authorities renewed the 14 percent cap on
growth in commercial bank lending in place since August 2023. The cap has significantly tightened
financial conditions and put downward pressure on inflation, as evidenced by reports of declined
credit requests, difficulties sourcing the Birr counterpart needed to open new LCs, and the stability
of the parallel market exchange rate. NBE advances totaled 1.0 percent of GDP in 2023/24
significantly reduced from 2.4 percent in 2022/23 but slightly higher (0.2 ppt of GDP) than
anticipated at the time of the program request. There has been no further monetary financing
through NBE advances. The government utilized the Cash Flow Facility at the NBE, a new standard
short-term facility with constrained access and periodic repayment requirements (MEFP ¶23), in the
first days of July (0.1 percent of GDP), which was repaid within 30 days. Claims on non-government
were contained by tight controls on SOE borrowing and the cap on bank credit growth. While the
share of liquid assets to total assets in the banking system remains above the regulatory 15 percent,
the situation across banks remains mixed and the overall ratio of excess reserves or cash to deposits
remained low at 0.8 percent.

11. Preliminary fiscal outturns in 2023/24 were in line with expectations. The fiscal deficit
fell to 2.0 percent of GDP in 2023/24, down from 2.6 percent of GDP in 2022/23. The 2023/24 overall
deficit, capital spending, and NBE net advances were each 0.2 percent of GDP higher than expected
at the time of program approval. General government spending is estimated to have been cut from
10.8 to 9.8 percent of GDP to reduce deficit financing needs, resulting in substantial fiscal tightening.
General government tax revenue are expected to decline further, from 6.8 to 6.3 percent of GDP.

12. The authorities are implementing fiscal and SOE sector reforms. They have made
progress in implementing the first steps of the revenue mobilization reform (VAT and excise)
approved in July. Given compilation lags, no data for 2024/25 fiscal outturns was available. The

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authorities are finalizing a supplementary budget reflecting the impact of the reforms and consistent
with the Fund-supported program. Implementation of measures to support the vulnerable
population via the Productive Safety Net Program (PSNP) is underway and an adequate budgetary
allocation for PSNP has been reflected in the supplementary budget proposal. The authorities raised
fuel prices upwards by 5 percent on July 10, 2024, which will contribute to closing the price gap
resulting from foreign exchange reform and will implement the fuel subsidy scheme to smooth the
impact of exchange rate reform on final consumers during a transition period through the
supplementary budget. To tackle critical macro-financial vulnerability stemming from the SOE
sector, the government adopted a 4-year electricity tariff adjustment plan, with quarterly price
adjustment that commenced from September.

OUTLOOK AND RISKS

13. Growth is expected to slow before strengthening in the medium-term as gains from
macroeconomic reforms firm up (Text Table 2). Tight financial conditions and uncertainty as
economic agents adapt to the new economic environment will temporarily constrain economic
activity. However, the benefits of comprehensive reforms, external debt treatment, resumption of
external financing, and greater domestic stability are expected to raise growth to 7.5–8 percent in
the medium term. Following the effects of recent exchange rate reform, inflation is expected to peak
around 29 percent in mid to late-2025 (lower than anticipated at program approval, reflecting
better-than-expected outcomes at the end of 2023/24, with a more delayed impact of exchange rate
passthrough), before moderating to around 16 percent by 2025/26. The first-round impact of
devaluation on headline consumer price inflation is expected to be limited given the low share in
private consumption expenditure of imports occurring at the official exchange rate prior to reform.
Inflation projections also reflect planned fuel and energy price increases (MEFP ¶46). Continued tight
financial conditions and the end of monetary financing of fiscal deficits will help reduce inflation,
while the temporary fiscal spending package will help cushion the socioeconomic impact of the
reforms. Revenue mobilization and reforms to strengthen the financial position of SOEs will create
space for sustainable priority spending. The current account deficit is projected to rise as FX
availability improves (allowing satisfaction of some previously repressed import demand) before
stabilizing at close to two percent of GDP in 2027/28.

14. The outlook is subject to downside risks, stemming from potential social discontent,
security challenges, and regional conflicts. The baseline scenario is predicated on successful
program execution and swift progress in implementing the external debt treatment. Potential
exchange rate pressures could generate volatility and impact volumes and market development.
Persistent inflation and depreciation expectations could require a stronger policy reaction, while
social pressures, policy slippages, or delays in reform implementation are downsides risks.
Inconsistent implementation or reversal of key fiscal or exchange rate reforms could result in larger
financing gaps or withdrawal of development partner or creditor support. Intensifying regional
spillovers from regional conflicts also pose risks to the outlook.

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Text Table 2. The Federal Democratic Republic of Ethiopia: Selected Economic Indicators

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

ECF Proj. ECF Proj. Projections
In percent change, unless otherwise mentioned
GDP at constant prices (at factor cost) 6.3 6.4 7.2 6.1 6.1 6.5 6.5 7.1 7.7 8.0 7.8
Consumer prices (period average) 1 20.2 33.9 32.5 26.9 26.6 30.1 25.0 16.7 12.2 10.4 9.6
Consumer prices (end of period) 1 24.5 34.2 29.3 22.9 19.9 31.1 29.4 13.5 10.9 9.7 9.4

External sector
Exports of goods and services (U.S. dollars, f.o.b.) 10.9 22.8 3.3 3.9 5.7 7.9 8.1 12.5 17.1 16.8 6.9
Imports of goods and services (U.S. dollars, c.i.f.) 2.3 24.9 -1.4 1.9 1.8 8.7 8.5 5.9 10.6 11.9 6.8
In percent of GDP, unless otherwise mentioned
External current account balance, including official transfers -2.8 -4.0 -2.8 -2.6 -2.4 -4.3 -4.4 -3.3 -2.5 -2.1 -1.9

Government finances
Overall fiscal balance, including grants (cash basis) -2.8 -4.2 -2.6 -1.7 -2.0 -1.7 -1.7 -2.1 -2.0 -2.0 -2.0
Total financing (including residuals and excluding net acqusition of assets) 2.8 4.2 2.6 1.7 2.0 1.7 1.7 2.1 2.0 2.0 2.0
External financing 0.7 0.1 0.3 0.2 0.2 1.3 1.3 -0.2 0.3 0.3 -0.4
Domestic financing 2.1 4.3 2.5 1.5 1.9 0.8 0.8 1.5 1.7 1.7 2.4
Primary fiscal balance, including grants -2.2 -3.5 -2.0 -1.1 -1.1 -0.6 -0.6 -0.6 -0.6 -0.9 -0.9

Public debt 2 56.1 48.9 40.2 34.4 34.7 42.9 43.6 39.1 36.0 33.6 31.6
Domestic debt 27.1 24.8 22.1 19.1 19.3 14.5 14.8 12.3 11.5 11.1 11.9
External debt (including to the IMF) 29.0 24.0 18.1 15.4 15.4 28.3 28.9 26.8 24.5 22.5 19.7
Gross official reserves (in millions of U.S. dollars) 2,866 1,495 1,026 1011 1,429 2793 3,126 5,273 7,259 10,343 11,602
(months of prospective imports of goods and nonfactor services) 1.5 0.8 0.5 0.5 0.7 1.2 1.4 2.1 2.6 3.5 3.6
Sources: Ethiopian authorities and IMF staff estimates and projections.
1
The base is December 2016.
2
Public and publicly guaranteed external debt, which includes long-term foreign liabilities of NBE and external debt of Ethio-Telecom.

POLICY DISCUSSIONS
A. Monetary Policy

15. The monetary policy stance remains restrictive helping to anchor inflation and
exchange rate expectations with the objective of ensuring price stability in the medium term.
Consistent with the authorities’ adoption of an interest rate-based monetary policy framework, they
committed to raise the monetary policy rate to be positive in real terms by the first quarter of 2025
and move away from quantitative constraints on bank lending. Rate increases will likely be required
later in the year to reach positive real interest rates (MEFP ¶25) and ahead of the ending quantitative
restrictions unless inflation expectations continue to decline rapidly. Continued close monitoring of
inflation and exchange rate developments and clear NBE communication on policy objectives and
actions will be critical to anchor expectations. The authorities should stand ready to accelerate the
pace of monetary policy rate rises to anchor expectations as needed. Continuing to avoid monetary
financing of the fiscal deficit through direct advances remains an essential condition for low inflation
and the success of the new monetary policy framework.

16. Further measures are needed to promote better market functioning, price discovery,
and to address persistent undersubscription in Treasury bill auctions. The two pension funds
(that have few alternative investment options) and CBE purchased over 80 percent of Treasury bill
issuance during July-September 2024, although a few smaller banks have started to increase their
holdings. While Treasury bill rates are now in theory allowed to move freely to market clearing
interest rates, the continued demand from the pension funds at deeply negative real interest rates,
the practice of allowing CBE to include Treasury bills in their reserve requirement calculation and the

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historical precedent of NBE rejecting auction bids above 10 percent has resulted in limited
participation from the banking sector. The authorities recognize the need for increased banking
sector participation and committed to ensure market participants understand the new rules of the
Treasury bill market (MEFP ¶22). Timely publication of Treasury bill auction results and publishing a
fixed issuance calendar will help increase transparency and predictability and are important first
steps in developing the local currency bond market. In this regard, the authorities will end the
requirement for commercial banks to purchase 5-year Treasury bonds at the end of this fiscal year
(new structural benchmark, end-June 25) and rely solely on market- based financing thereafter. The
authorities also stand ready to explore additional measures to improve banking sector participation,
that could potentially include bringing forward the removal of requirements for banks to purchase
government securities and DBE bonds, and fully eliminating the eligibility of CBE to include Treasury
bills in its reserve requirement calculation.

17. Further development of the monetary policy framework is proceeding (MEFP ¶20). The
deployment of a central securities depository (CSD) (end-December SB), a review of the reserve
requirement framework with a view to simplifying banking sector liquidity management, and
improvements to monetary policy analytical capacity will all be important to support the
implementation of the framework aligned to the evolving monetary policy stance. Continued efforts
to develop the inter-bank money market, including the launch of an online trading platform in
November 2024, will support money market and local currency bond market development, and
improve banking sector efficiency and treasury management practices.

B. Exchange Rate Policy

18. The transition to a more flexible exchange rate supported by IMF technical assistance
has progressed well, although the FX supply response has been slower than anticipated. The
exchange rate has converged to a level similar to the pre-reform parallel market rate, with tight
monetary conditions contributing to stability. Remittance platforms also offer similar exchange rates.
The parallel market premium to NBE’s daily published indicative rate has narrowed and stabilized at
around 5 percent. However, FX market liquidity is limited, with wide bid-offer spreads and no activity
in the interbank FX market. The competition for attracting remittances has intensified during the
Ethiopian new year holiday period, with many banks offering a premium or “gift” as an incentive and
others increasing their market rates closer to the parallel market rate and narrowing their bid-offer
spread. The NBE has launched an awareness campaign about remittances aligned with the new FX
regime, including a new mobile app providing information and connections with banks for transfers
and loan products, targeted at the diaspora community.

19. Transitional one-off arrangements are needed to address FX demand for the legacy
LCs issued for fuel imports in the pre-program period. These LCs were issued by CBE, while FX
liquidity to settle them was provided by NBE, drawing on surrender requirements. A total of US$3.1
billion of legacy LCs that were issued in the pre-FX reform period mature in the first year of the
program, of which US$2.5 billion remain outstanding, while US$179 million remains available from
the US$670 million originally budgeted for this purpose under the program. While CBE and private

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banks will cover the majority of the remaining stock, the large total has created uncertainty and may
have limited participation in an already thinner-than-expected FX market. To the extent that market
participants cannot source the requisite foreign exchange, the NBE will provide FX to settle legacy
fuel payments by allocating higher than expected proceeds from gold export, up to a maximum of
US$600 million. NBE’s maximum possible contribution of US$1.3 billion accounts for 40 percent of
the US$3.1 billion of pre-reform LCs. NBE will allocate the additional resources either via auction
and/or directly to CBE at the prevailing market exchange rate. NBE have committed to providing no
additional resources subsequently (MEFP ¶16), and NIR targets have been raised (paragraph 30) to
ensure part of the overperformance in reserves build up from gold and other sources is saved. With
respect to LCs opened after program approval and maturing in 2024/25 and 2025/26, the NBE
proposes a burden sharing agreement exclusively between CBE and private commercial banks,
broadly reflecting their FX market share. After 2025/26, there will be no special arrangement.

20. The NBE continues policy efforts to support FX market development and foster a more
price elastic FX supply response:
• NBE will remove the requirement for exporters to surrender FX they are entitled to retain if it
is not used after one-month, by end-October 2024. This will help exporters to better manage
FX liquidity, risks, and the import of necessary inputs. The authorities reiterated their
commitment to phase out surrender requirements by the end of the program, at a pace
determined by the development of FX market liquidity.
• NBE is enhancing monitoring of the FX market and enforcement of the new FX directive,
through establishing and implementing an internal monitoring manual, strengthening both
off-and-on-site inspections and establishing a dedicated task force on banks compliance
with the Foreign Exchange Market Operation Code of Conduct. This will ensure that all FX
transactions are properly reported and reflected in the indicative exchange rate. NBE
continues to disseminate information on the new FX regime and directive, e.g., through
publishing an extensive “frequently asked questions” planned for November 2024.
• In September 2024, NBE issued a circular instructing banks not in compliance with the
regulatory NOP threshold to provide plans to ensure full compliance by end-June 2025
(end-September 2024, structural benchmark). Banks are expected to provide plans to NBE by
end-December 2024. With IMF technical assistance, NBE will strengthen the measurement of
NOPs to better capture FX risk profiles, revise the NOP prudential regulation, ensure
adequate enforcement and redesign the call report to collect more granular information.
• NBE is conducting an FX market survey covering both banks and the real sector to identify
impediments to efficient FX market functioning and deepening. With technical support from
the IMF, the authorities plan to complete the survey by end-2024. Additional policy
measures are expected based on the survey results.

21. NBE will continue to restrict FX intervention to managing disorderly market

conditions, at their discretion, and clearly communicate policy intentions if intervention is
judged necessary. Any FX intervention will be conducted via public auction following NBE’s FX

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auction guidelines. Auction results will be published on NBE’s website immediately after the closing
of the auction.

C. Fiscal Policy

22. Revenue mobilization efforts are advancing as planned. The draft national medium-term
revenue strategy (NMTRS) incorporates key program-supported revenue mobilization reforms,
including VAT, excise, corporate taxes, presumptive income taxes, and property taxes. Revenue
yields are to come primarily from tax policy reforms. NMTRS was adopted by the Council of
Ministers and published (SB, end-September 2024). The new VAT Proclamation approved in
Parliament in July 2024: (i) legislatively reduces exemptions; (ii) limits zero-rating for VAT purposes
to only exported and re-exported items; (iii) expands the scope for voluntary registration; and
(iv) clarifies the respective revenue collecting mandates of the Federal and regional governments.
The removal of VAT exemptions implemented via a Directive in July was carried over into the new
VAT Proclamation. Revised alcohol and tobacco excise rates have been implemented, and the excise
stamp regime will be implemented on selected items including on tobacco and imported sprits from
October. With import duties now calculated based on the NBE's indicative daily exchange rates,
customs revenue received a substantial boost. A customs directive was issued requiring all customs
branches to adjust declaration rates to the current exchange rate, including for goods registered
before the exchange rate liberalization. A TADAT mission was conducted in August, earlier than
originally envisaged, and will inform tax administration reform priorities.

23. A Supplementary Budget for FY2024/25 in line with program parameters is expected
to be adopted in early October. The supplementary Budget reflects the package of measures to
mitigate the inflationary and socio-economic impact of the exchange rate reform. A total spending
package of about 1½ percent of GDP will be implemented in 2024/25. 1 Measures to expand social
protection through the PSNP have been taken, including adjusting benefit levels for inflation
impacts in September 2024 for urban beneficiaries and January 2025 for rural beneficiaries. The
government has imported cooking oil and sugar to manage price spikes ahead of the Ethiopian New
Year, in line with the fiscal envelope under the program. Initial steps to implement the transitional
fuel price subsidy have been taken with the creation of a technical team to manage budget transfers
to EPSE and advise on fuel price adjustment and replenishment of the Fuel Price Stabilization Fund.
Lower international prices for imported fuels are expected to help replenish accumulated deficits in
the fuel price stabilization fund faster than originally planned.

24. SOE reforms are proceeding in line with expectations. Audited IFRS based financial
statements for key SOEs have been published (structural benchmark, end-Sept 2024). The first
quarterly increase in the electricity tariff has been implemented (structural benchmark, end-Sept
2024) in line with the multi-year plan approved by the Council of Ministers in June 2024. Together
with the upfront increase of about 20 percent, the quarterly tariff increases will cumulate to about
80 percent over the next 12 months, which will contribute to restoring financial sustainability of the

1 See IMF Country Report 2024/253 Annex IV and MEFP ¶37.

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power sector. Further, with adoption of the new VAT Proclamation, public utilities (water and
electricity) have now been brought into the VAT regime (with consideration for low-income and
vulnerable groups), which further supports fiscal sustainability. Power utilities have notified the
regulator on the intention to seek a tariff adequacy review and ensure cost recovery.

D. Debt

25. Staff assess that sufficient assurances regarding the debt restructuring needed to
restore debt sustainability are in place. Financing assurances for the official sector debt treatment
are derived from the Common Framework process including the Paris Club. The authorities are
committed to working toward reaching an agreement in principle with official creditors by the time
of the second review and with bondholders as soon as feasible after that.

26. The authorities are actively engaging with Eurobond holders on the need for debt
restructuring on comparable terms to the official creditors. Staff assess that the authorities are
making good faith efforts to agree terms with Eurobond holders. Discussions with bondholders were
held in December 2023, an update call in May 2024, and a debt restructuring proposal was
submitted in July 2024. The authorities held a global-investors call on October 1, 2024, to update
Eurobond holders on the latest macroeconomic developments and the debt restructuring discussion
with the OCC.

27. There have been no changes in the macroeconomic framework that require revising
the amount of debt relief needed at this stage. The authorities are in talks with prospective
lenders concerning the loan terms for the Koysha dam project.2 These terms are broadly in line with
the assumption in the latest DSA.

E. Financial Sector

28. Continued enforcement of NOP limits will be important to contain exchange rate
related financial risks and stimulate activity in the FX market. Considering the legacy of
pre-exchange rate reform requirements, enforcement builds on the recently issued order to banks
to develop plans to ensure full compliance with the NOP regulation by June 2025. The authorities
have designed a new report to collect more granular data on the subcomponents of on and
off-balance sheet FX positions and developed a new monitoring system to support daily
enforcement of NOP limits. Ensuring compliance will also encourage banks to trade when close to
NOP limits, supporting FX market development.

29. Reforms to ensure CBE can operate successfully as a fully commercially oriented bank
continue. Building on the recapitalization in July 2024, the authorities are developing operational
and governance reforms in the context of the World Bank Financial Sector Support Program lending
operation (MEFP ¶47). Key reforms include reorienting the operating model of CBE by setting a

2 The authorities requested an exemption from the zero-limit on new non-concessional borrowing for this project
(see IMF Country Report 2024/253, Box 1).

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commercial mandate issued by Ethiopian Investment Holdings and updating its strategic plan;
reforming the governance framework, including the composition of CBE’s board; reviewing CBE’s
public service obligations; and performing an updated Asset Quality Review.

PROGRAM MODALITIES
30. The following modifications to program conditionality are being proposed:
• Modifications of the end-December 2024, the end-March 2025 and the end-June 2025 NIR
targets to lock in part of the overperformance observed on August 16, 2024 and
establishment of ITs for end-September 2025 (Table 9). The end-June 2025 NIR target is
raised by US$ 300 million corresponding to about half of overperformance in meeting the
August 16 NIR target. An increase in near-term target is warranted by Ethiopia’s
vulnerabilities and heightened uncertainty around outlook. The targeted level of FX reserves
by the end of the program remains unchanged.
• Modification of the test date for the SB on the finalization and publication of audited
financial statements for 2021/22–2022/23 of the NBE from end-December 2024 to end-
January 2025 (Table 10);
• Addition of four new structural benchmarks on the publication of budget implementation
(end-April 2025), the termination of mandatory purchase of T-bonds by commercial banks
(end-June 2025), requiring EPSE to remit federal fuel taxes (December 2025), and the
submission of the FY2025/26 draft budget (end-June 2025).

31. Adequate financing assurances are in place. The World Bank disbursed US$1.5 billion of
budget support in August 2024 and provided firm commitments of another US$1 billion of budget
support by July 2025. With this commitment, as well as the progress towards debt restructuring
through Credible Official Creditor Process under the Common Framework, there are firm
commitments for the next twelve months and good prospects for financing the remainder of the
program. Staff assess that all Poverty Reduction and Growth Trust exceptional access criteria and
criteria under the Policy Safeguards on High Combined Credit have been met (Box 1).

32. Ethiopia’s capacity to repay is considered adequate, predicated on successful program

implementation, securing financing assurances and debt restructuring, although there are
substantial downside risks. The outstanding stock of Fund credit would peak at 18.8 percent of
exports, 68.4 percent of FX reserves, and 1.9 percent of GDP. Debt service to the Fund is projected to
peak at 2.4 percent of exports, 7.4 percent of FX reserves, and 0.2 percent of GDP. Risks to capacity
to repay rise towards the end of the ten-year horizon when repayments to the Fund peak and
rescheduled debt service payments recommence. Such risks are mitigated by reforms to address
external imbalances and the reserve accumulation envisaged under the program.

33. Enterprise risks to the Fund remain significant, with mitigants. High uncertainty around
the outlook (complexity of the reform agenda, data limitations, and the fragile socio-economic
environment) will continue to pose enterprise risk. Outcomes after the initial reforms and program

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performance to date in line with commitments mitigate risks. Strong program implementation and
decisive policymaking to swiftly recalibrate policies, if needed, will be essential to maintain domestic
and external confidence.

34. An update safeguards assessment mission was conducted in September 2024.

Preliminary findings indicate that progress on safeguards recommendations is proceeding slowly in
a constraining legal environment. Advancing on long-overdue recommendations from the 2020
safeguards assessment, the NBE has adopted an external auditor selection and rotation policy and is
expected to appoint a new external auditor for five-years, following a competitive bid process,
starting with the audit of the FY2022/23 financial statements. The NBE’s audited financial statements
for FY2021/22 were finalized and published in September 2024, and the FY2022/23 will be finalized
and published by end-January 2025 (modified Structural Benchmark). The mission discussed the
need to make further progress on other safeguards recommendations, including in the areas of
financial reporting, internal audit, and foreign reserves management.

35. Draft amendments to the NBE Proclamation submitted to Parliament introduce

important improvements on the NBE’s mandate, functions, and powers but depart from
leading practices in critical areas related to central bank autonomy and governance. Based on
Fund TA, the NBE prepared draft amendments to the NBE Proclamation, with respect to the
mandate, decision-making structure (internal checks and balances and collegial decision-making),
external audit, and transparency. Notwithstanding this, critical gaps remain in the key areas of
autonomy and governance. The draft Proclamation also allows for emergency liquidity assistance to
be provided without collateral. Further engagement with the authorities will continue to identify
scope for improvements with a view to meeting the Structural Benchmark (end-December 2024).

36. As the OCC has provided financing assurances, arrears to other official bilateral
creditors are deemed away. Ethiopia has pre-HIPC era arrears to Libya, Russia, and the former
Republic of Yugoslavia, totaling about US$525 million as of June 2023, which are deemed away.
Furthermore, there are about US$15 million in external arrears to commercial creditors from the
former Czechoslovakia, India, Italy, and the former Yugoslavia, all pre-dating the 1990s, and
authorities are making best efforts to resolve these arrears.

37. The financing assurances review indicates policy requirements are met. The Lending into
Arrears, Lending into Official Arrears and non-tolerance of arrears policies are met with respect to
external arrears, adequate safeguards remain in place for the further use of the Fund’s resources in
light of progress made in debt restructuring, and adjustment efforts are not undermined by
developments in creditor-debtor relations.

38. An Article VIII mission was held on September 12–23, 2024 and authorities are
currently reviewing the preliminary findings. All of the identified Article VIII measures were
introduced pre-approval of the ECF arrangement and thus have no program implications. With the
Article VIII mission, staff has verified that following the prior action to liberalize the foreign exchange
market implemented by the authorities, the National Bank of Ethiopia has eliminated regulatory
controls on setting the exchange rate (thereby allowing the market to determine exchange rate).

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Staff’s assessment when finalized will establish a clear baseline on outstanding measures going
forward for the purpose of program monitoring. Adjustment and eventual elimination of the
2.5 percent commission on most FX transactions within the program period will be aligned with the
impact on NBE’s income and capital position. The authorities have committed and will take steps to
eliminate this measure during the program period.

Box 1. Assessment of Exceptional Access Criteria and Policy Safeguards on High Combined
Credit

The ECF arrangement for Ethiopia includes exceptional access under the PRGT and triggers the Policy
Safeguards on High Combined Credit (PS-HCC) due to Ethiopia’s outstanding obligations to the GRA and
resulting in high levels of combined PRGT and GRA credit. Staff judge related criteria under these two
circumstances to be met:
Staff assesses all Poverty Reduction and Growth Trust (PRGT) exceptional access criteria to be met
based on financing assurances from development partners, and from official bilateral creditors for a
debt treatment under the CF, an assessment of moderate risk of debt distress by the end of the
program, and the authorities’ commitment to the program.

• Criterion 1 (exceptional BOP pressures): Ethiopia is experiencing exceptional BOP pressures, with
extremely low reserves, FX shortages, exchange rate overvaluation, and is in external debt distress.

• Criterion 2 (debt sustainability with high probability): A combination of strong policies and financing
from sources other than the Fund, including via the treatment of official bilateral debt under the CF and
application of comparability of treatment to non-official debt, would secure sustainability with high
probability by improving the debt distress rating to moderate by the end of the program. There are
good prospects for a successful debt restructuring consistent with reaching debt sustainability and
covering the financing gap under the program.

• Criterion 3 (income criterion for presumed blending): At about 74 percent of the IDA Operational Cut-off,
Ethiopia does not meet the income criterion for presumed blending and is thus eligible for PRGT
exceptional access.
• Criterion 4 (reasonably strong prospect of program success): The authorities’ established commitment to
program implementation, as demonstrated by frontloaded policy adjustments implemented so far,
provides a sufficient basis for a favorable assessment of a strong prospect of success. The
implementation of prior actions demonstrates strong program ownership.
Staff assesses that the criteria under the Policy Safeguards on High Combined Credit (PS-HCC) are
also met. In line with staff’s judgment on PRGT exceptional access criteria 1, 2 and 4, staff assesses that the
three criteria under the PS-HCC are also met.

STAFF APPRAISAL
39. The program has made a strong start. The transition to a more flexible exchange rate has
progressed well, with the exchange rate converging to the pre-reform parallel market rate and the
parallel market premium falling to a low and relatively stable level of around 5 percent. With strong
market participation in OMOs, monetary policy reforms have successfully made a critical first step.
Tight monetary conditions are contributing to stability, and inflation has declined through August
2024. Accumulation of FX reserves has exceeded expectations. Passage of the VAT law and

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implementation of the related directive, as well as the excise stamp regime, have put revenue
mobilization plans underway. All performance criteria for this review were met, as were four of five
structural benchmarks. The SB on the emergency liquidity assistance directive was missed but is
expected to be finalized in early October 2024, incorporating staff comments.

40. The FX market has made a relatively smooth transition to the new regime. While bid-
ask spreads remain wide, they have fallen, with differentiated behavior across banks and evidence of
competition for remittance and business FX flows. However, sporadic reports of delays or lack of
availability of FX persist, and the questions remain about the market’s ability to absorb “big ticket”
demands, such as that for payments of deferred LCs for fuel imported prior to the FX reform.
Limitations to the near-term FX supply response include a seasonal low in export receipts,
uncertainty that may be generating depreciation expectations that deter some market participants,
and structural features of the market limiting transparency or creating frictions. Staff view the
authorities’ proposal to address the FX overhang from past fuel imports, relying principally on
market participants, but also including an additional contribution from the NBE provided at the
market exchange rate as appropriate to reduce uncertainty and allow more time for market
deepening. Staff strongly welcome complementary reforms to strengthen FX supply and further
liberalize the market, and the authorities’ commitment that no further interventions will be made
above the maximum committed, and once the legacy of pre-reform LCs is settled. An increase in the
NIR target for end-December 2024, end-March 2025 and end-June 2025 will ensure some of the
overperformance in reserves is saved, in line with program objectives.

41. Early implementation of monetary policy reforms has been encouraging. The policy
stance should remain tight. The widespread uptake of the NBE’s OMOs has absorbed substantial
liquidity, demonstrated interest in attractive assets to manage liquidity, and established the first
rung in an effective transmission mechanism. Banking sector liquidity has tightened as lending
recovers in line with seasonal export activity, and under the constraint of the cap on lending growth.
With inflation still high, the authorities should meet the commitment to reach a positive real policy
interest rate in the first quarter of 2025 to help to ensure price stability and keep exchange rate
expectations anchored. Given interest rates are now the primary tool to signal the policy stance,
removal of the lending cap, along with carefully sequenced policy rate increases, will be important
to support the new policy framework. A rise in Treasury bill rates to yields at least in line with the
monetary policy rate is needed to ensure that the transmission mechanism and government debt
markets continue to develop. Enhanced communication with market participants can help ensure
new market rules are well understood, but additional measures such as advancing the removal of
Treasury bill eligibility for reserve requirements may also be needed.

42. Tax revenue reforms are proceeding as planned. The NMTRS was approved and
published in September 2024, laying out the targets and key areas for policy changes to raise
revenue in line with objectives over the program period. To ensure efficient implementation of the
authorities’ revenue raising plans, inter-ministerial committees have been established, reporting on a
regular basis to the senior political leadership. Passage of the new VAT law and adoption of a new

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VAT directive will generate substantial savings from the elimination of exemptions and zero-ratings,
and excise tax reforms are being implemented.

43. A supplementary budget will be approved in October. The budget is in line with program
assumptions and reflects the measures to mitigate the impact of reform on the vulnerable
population. Staff urge the authorities to fully utilize the budget agreed for PSNP. With the benefit of
lower international prices for imported fuels, staff recommend using the savings to reduce
accumulated deficits in the fuel price stabilization fund more quickly, restoring buffers in case of
future shocks, while still preserving a moderate pace of price increases for final consumers. Staff
welcome the prudent and timely use made by the authorities of part of the resources for importing
key commodities to avoid price spikes under the program.

44. Steps to securing a debt treatment and restoring debt sustainability continue.
Engagement with both official creditors and private (Eurobond) creditors are proceeding. With the
exception of Koysha, the authorities are not borrowing non-concessionally, carefully evaluating all
new concessional debt before taking on commitments, while strengthening debt management.

45. Maintaining momentum on financial sector reforms will continue to strengthen

financial stability. The recapitalization of CBE has put the bank on a sound footing. Steadily
reducing the legacy of FX obligations incurred as a consequence of past policy decisions will be an
important next step to reducing vulnerabilities, particularly legacy LCs for fuel. Ongoing governance
and operational reforms for CBE in the context of the World Bank’s Financial Sector Strengthening
Program, will help ensure it can operate as a commercially oriented institution, with clearly defined
public service obligations. Risk management practices will also continue to be strengthened, CBE’s
balance sheet structure will help contain lending. Private banks have made substantial progress in
reducing their net open positions, and many have now reached balanced or moderately long
positions. Close supervision and enforcement of regulations will ensure both that risks are kept
within manageable bounds and encourage interbank FX trading.

46. Structural reform continues in the SOE sector. A significant step forward has been taken
with the publication of IFRS audited reports for the key firms. The announcement of a plan for tariff
increases in electricity, protecting the smallest consumers, is a critical step in the financial
strengthening of the electricity sector, while the recapitalization of CBE has enabled treatment of the
sector’s heavy debt burden. Sustained efforts to bring EEP to operational balance are needed if the
authorities’ ambitious access to electricity plans are to become reality. Staff welcomes news of
progress in restarting discussions for sale of sugar sector assets.

47. The update safeguards assessment found progress, albeit slow. Staff welcome the recent
progress made in strengthening audit policy and selecting an auditor and look forward to the
publication of delayed audits for FY 2022/23 in the coming months. With the draft NBE
Proclamation already embedding progress, discussions continue on scope to address critical gaps
with respect to autonomy and governance.

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

48. Staff support the completion of the first review under the ECF arrangement. All
performance criteria have been met. The authorities present a strong set of policies and structural
reform measures in the attached LOI and MEFP, demonstrating the commitment to achieve the
objectives of the Fund-supported program. Staff supports the completion of the financing
assurances review as well as the modifications of the end-December 2024, the end-March 2025, and
the end-June 2025 NIR targets. Staff also supports the modification of target date of the SB on “The
NBE to finalize and publish audited financial statements for 2021/22–2022/23”.

22 INTERNATIONAL MONETARY FUND

 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 1. The Federal Democratic Republic of Ethiopia: Selected Economic Indicators,

2020/21–2028/291

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Act. Act. Prel. ECF Proj. ECF Proj. Projection

In percent change, unless otherwise mentioned

National income and prices
GDP at constant prices (at factor cost) 6.3 6.4 7.2 6.1 6.1 6.5 6.5 7.1 7.7 8.0 7.8
GDP deflator 21.8 34.7 32.9 26.7 26.4 25.8 25.1 17.4 12.6 11.0 9.6
1
Consumer prices (period average) 20.2 33.9 32.5 26.9 26.6 30.1 25.0 16.7 12.2 10.4 9.6
1
Consumer prices (end period) 24.5 34.2 29.3 22.9 19.9 31.1 29.4 13.5 10.9 9.7 9.4

External sector
Exports of goods and services (f.o.b.) 10.9 22.8 3.3 3.9 5.7 7.9 8.1 12.5 17.1 16.8 6.9
Imports of goods and services (c.i.f.) 2.3 24.9 -1.4 1.9 1.8 8.7 8.5 5.9 10.6 11.9 6.8
Export volume (goods) 12.6 2.5 -17.3 2.0 6.9 1.7 0.4 13.9 21.1 17.7 10.9
Export volume (goods and services) 3.2 11.0 -3.2 7.7 8.8 7.3 5.0 10.7 11.0 9.2 5.5
Import price index (percent change) 3.6 16.5 4.3 -4.1 -3.6 -0.2 -0.6 -2.1 -1.4 -1.2 -1.2
Terms of trade (goods and services, deterioration – ) 3.7 -5.0 2.2 0.6 0.7 0.7 3.6 3.9 7.0 8.2 2.5
Nominal effective exchange rate (end of period, depreciation –) -24.1 -8.6 6.9 … … … … … … … …
Real effective exchange rate (end of period, depreciation –) -10.2 10.1 24.0 … … … … … … … …

Money and credit

Claims on nongovernment 2 21.9 18.9 24.1 12.0 9.7 21.2 -14.3 37.9 40.1 24.2 21.1
Broad money 29.9 27.2 26.6 14.4 14.1 30.3 28.4 28.3 30.6 22.1 21.0
Base money 7.2 37.2 32.0 3.3 -1.1 23.9 27.9 26.2 19.1 18.6 18.7
Velocity (GDP/broad money) 3.22 3.59 4.02 4.70 4.70 4.90 4.94 4.88 4.56 4.50 4.40

In percent of GDP, unless otherwise mentioned

Financial balances3
Gross domestic savings 19.0 15.2 14.8 13.9 14.2 10.4 11.9 14.4 16.8 17.8 17.4
Public savings 1.6 -0.4 1.1 1.7 1.7 1.0 1.0 2.4 3.0 3.3 3.5
Private savings 17.4 15.6 13.7 12.2 12.5 9.4 10.9 12.1 13.8 14.5 13.9
Gross domestic investment 28.0 25.3 22.2 19.7 19.9 20.1 21.6 23.4 25.0 25.4 24.7
Public investment 7.5 6.4 5.6 4.2 4.1 3.7 5.3 5.8 6.2 6.7 6.4
Private investment 20.5 19.0 16.6 15.4 15.9 16.4 16.3 17.6 18.8 18.8 18.3
Resource gap -9.1 -10.1 -7.4 -5.8 -5.7 -9.7 -9.6 -9.0 -8.2 -7.7 -7.3
External current account balance, including official transfers -2.8 -4.0 -2.8 -2.6 -2.4 -4.3 -4.4 -3.3 -2.5 -2.1 -1.9

Government finances
Revenue 10.2 8.1 7.9 7.3 7.5 8.3 8.4 9.8 10.9 11.3 11.5
Tax revenue 9.0 7.1 6.8 6.3 6.3 7.3 7.3 8.7 9.8 10.2 10.4
Nontax revenue 1.3 1.0 1.0 1.0 1.1 1.0 1.1 1.1 1.1 1.1 1.1
External grants 0.8 0.4 0.4 0.4 0.4 1.4 1.3 0.6 0.5 0.4 0.4
Expenditure and net lending 13.8 12.7 10.8 9.4 9.9 11.3 11.5 12.4 13.4 13.7 14.0
Fiscal balance, including grants (cash basis) -2.8 -4.2 -2.6 -1.7 -2.0 -1.7 -1.7 -2.1 -2.0 -2.0 -2.0
Total financing (including residuals and excluding privatization) 2.8 4.2 2.6 1.7 2.0 1.7 1.7 2.1 2.0 2.0 2.0
External financing 0.7 0.1 0.3 0.2 0.2 1.3 1.3 -0.2 0.3 0.3 -0.4
Domestic financing 2.1 4.3 2.5 1.5 1.9 0.8 0.8 1.5 1.7 1.7 2.4

4
Public debt 56.1 48.9 40.2 34.4 34.7 42.9 43.6 39.1 36.0 33.6 31.6

Domestic debt 27.1 24.8 22.1 19.1 19.3 14.5 14.8 12.3 11.5 11.1 11.9
External debt (including to the IMF) 29.0 24.0 18.1 15.4 15.4 28.3 28.9 26.8 24.5 22.5 19.7
Overall balance of payments (in millions of U.S. dollars) -41 -2,639 -809 -91 328 -1,816 -1,909 44 335 780 1,298
Gross official reserves (in millions of U.S. dollars) 2,866 1,495 1,026 1,011 1,429 2,793 3,126 5,273 7,259 10,343 11,602
(months of prospective imports of goods and nonfactor services) 1.5 0.8 0.5 0.5 0.7 1.2 1.4 2.1 2.6 3.5 3.6
Net international reserves (in millions of U.S. dollars, program definition) 1,922 271 -269 … … … … … … … …
GDP at current market prices (billions of birr) 4,341 6,158 8,722 11,676 11,649 15,844 15,709 19,904 24,333 29,282 34,646.4
Sources: Ethiopian authorities and IMF staff estimates and projections.
1
The base is December 2016.
2
Projections from 24/25 include impact of CBE recapitalization.
3
Based on data from Central Statistical Agency (CSA), except for the current account balance, which is based on balance of payments (BOP) data from National Bank of Ethiopia (NBE).
4
Public and publicly guaranteed external debt, which includes long-term foreign liabilities of NBE and external debt of Ethio-Telecom. Does not include expected debt relief.

INTERNATIONAL MONETARY FUND 23

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 2a. The Federal Democratic Republic of Ethiopia: General Government Financial
Operations, 2020/21–2028/291
(Millions of birr)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Actual ECF Proj. ECF Proj. Projections

Total revenue and grants 478,888 525,736 717,149 901,105 914,598 1,525,795 1,537,102 2,067,874 2,772,031 3,440,453 4,144,220
Revenue 444,583 499,043 685,021 857,904 871,391 1,311,704 1,327,216 1,958,301 2,653,556 3,314,154 3,994,420
Tax revenue 388,763 436,753 595,135 737,578 739,341 1,152,827 1,147,014 1,729,967 2,374,424 2,978,245 3,596,971
Direct taxes 173,965 206,825 265,385 355,331 345,522 443,378 436,349 711,573 974,541 1,192,392 1,432,883
Indirect taxes 214,798 229,927 329,749 382,247 393,819 709,449 710,665 1,018,395 1,399,883 1,785,853 2,164,088
Domestic indirect taxes 108,160 98,617 161,197 210,076 215,280 362,044 359,338 534,016 753,808 1,008,333 1,248,480
Import duties and taxes 106,638 131,310 168,553 172,171 178,539 347,405 351,328 484,379 646,075 777,520 915,608
Nontax revenue 55,819 62,290 89,887 120,326 132,049 158,877 180,202 228,333 279,132 335,909 397,448
Grants 34,305 26,693 32,128 43,201 43,207 214,091 209,886 109,574 118,475 126,299 149,801
Program grants 10,747 0 2,426 0 0 130,260 127,787 12,920 14,993 16,270 17,490
Project grants 23,558 26,693 29,701 43,201 43,207 83,831 82,099 96,654 103,483 110,030 132,311

Total expenditure and net lending (cash basis) 599,007 781,789 943,881 1,099,597 1,151,470 1,795,116 1,804,113 2,475,912 3,258,682 4,026,091 4,837,149
2
Recurrent expenditure 363,597 518,302 588,122 664,815 681,799 1,238,198 1,225,267 1,558,608 1,989,379 2,442,213 2,905,009
Defense spending 37,092 102,617 82,825 50,000 71,122 80,430 80,430 110,038 134,519 161,881 191,538
3
Poverty-reducing expenditure 176,979 208,540 234,055 281,983 281,325 488,766 484,574 764,247 980,988 1,204,136 1,438,984
Education 107,513 127,506 145,117 174,833 174,425 296,563 294,020 447,061 573,848 704,384 841,763
Health 40,665 47,267 53,596 64,571 64,421 116,540 115,541 197,641 253,692 311,400 372,134
Agriculture 21,850 23,282 26,288 31,671 31,597 57,160 56,670 90,476 116,135 142,552 170,355
Natural resources 5,051 7,779 6,928 8,347 8,327 14,158 14,037 22,411 28,766 35,310 42,196
Roads 1,899 2,706 2,126 2,561 2,555 4,344 4,307 6,658 8,546 10,490 12,536
Interest payments 24,001 38,513 54,544 71,759 68,888 177,469 172,945 227,390 287,352 370,374 439,357
Domestic interest and charges 16,563 26,602 41,557 61,406 56,774 149,814 144,330 183,774 235,776 306,618 363,896
4
External interest payments 7,438 11,911 12,987 10,353 12,114 27,654 28,614 43,616 51,576 63,756 75,461
Other recurrent expenditure 125,525 168,632 216,699 261,073 260,464 491,533 487,318 456,934 586,520 705,822 835,130
Capital expenditure 235,410 263,488 355,759 434,782 469,671 556,918 578,846 917,304 1,269,303 1,583,878 1,932,140
Central treasury 186,923 216,570 284,022 356,486 374,225 409,066 434,048 743,751 1,071,428 1,373,215 1,686,855
External project grants 23,558 26,693 29,701 43,201 43,207 83,831 82,099 96,654 103,483 110,030 132,311
External project loans 24,929 20,224 42,036 35,095 52,239 64,022 62,700 76,900 94,392 100,633 112,974

Overall balance
Including grants -120,119 -256,054 -226,733 -198,492 -236,872 -269,320 -267,011 -408,038 -486,651 -585,638 -692,928
Excluding grants -154,424 -282,747 -258,860 -241,693 -280,079 -483,412 -476,897 -517,612 -605,126 -711,938 -842,729

Financing 142,064 265,726 243,253 198,492 236,872 269,320 267,011 408,038 486,651 585,638 692,928
Net external financing 29,818 3,295 29,010 18,665 18,670 204,293 200,073 -39,953 77,444 81,095 -122,801
Gross borrowing 5 26,804 20,224 51,843 35,095 35,104 303,770 297,494 76,900 197,778 187,120 112,974
IMF budget support 65,256 63,908 0 0 0 0
Project loans 24,929 20,224 42,036 35,095 35,104 64,022 62,700 76,900 94,392 100,633 112,974
Budget support 1,875 0 9,807 0 0 174,493 170,887 0 103,386 86,486 0
G20 Debt Service Suspension Initiative 8,009 0 0 0 0 0 0 0 0 0 0
Amortization, due -4,995 -16,929 -22,833 -16,430 -16,434 -207,538 -203,249 -122,264 -141,578 -203,224 -235,775
Net domestic financing 6 89,426 262,431 214,243 179,828 218,202 127,260 127,885 298,254 409,207 504,544 815,729
Banking system 34,862 206,614 141,729 89,914 109,101 29,260 29,260 144,384 204,603 252,272 407,865
Nonbank sources 54,564 55,817 72,514 89,914 109,101 98,000 98,625 153,870 204,603 252,272 407,865
o/w gross advances from NBE 51,625 61,201 189,543 95,000 111,129 0 0 0 0 0 0
o/w T-bills and T-bonds 88,378 201,230 24,700 84,828 107,074 127,260 127,885 298,254 409,207 504,544 815,729
o/w Other (incl. net deposit withdrawal) -50,577 0 0 0 0 0 0 0 0 0 0
Privatization proceeds 22,820 0 0 0 0 0 0 88,791 0 0 0
Other below-the-line operations 7 -21,945 -9,673 -16,521 0 0 -62,233 -60,947 60,947 0 0 0
Residual gap 108,061 105,828 5,411 21,244 97,199 0

CBE recapitalization
Total debt outstanding 870,000 870,000 870,000 870,000 870,000 870,000 745,714 621,429
Debt service 0 0 78,300 78,300 78,300 78,300 229,628 202,702
Amortization 0 0 0 0 0 0 124,286 124,286
Interest (included in the budgetary central government) 0 0 78,300 78,300 78,300 78,300 105,342 78,416

Total net financing (budgetary plus CBE recap. amortization) 198,492 236,872 269,320 267,011 408,038 486,651 709,924 817,214

Sources: Ethiopian authorities and IMF staff estimates and projections.

1
Government financial statistics are reported by the authorities based on GFSM 1986.
2
Excluding special programs (demobilization and reconstruction).
3
Poverty-reducing spending is defined to include total spending on health, education, agriculture, roads, and food security.
4
External interest and amortization are presented after HIPC debt relief from the World Bank and the African Development Bank.
5
Includes prospective donor financing to close the financing gap.
6
Net domestic financing is derived as a residual financing source in projection years.
7
Negative amounts signify overfinancing. Net FY2024/25 overfinancing reflects expected timeline of DPO2 disbursement.

24 INTERNATIONAL MONETARY FUND

 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 2b. The Federal Democratic Republic of Ethiopia: General Government Financial
Operations, 2020/21-2028/291
(Percent of GDP)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Actual ECF Proj. ECF Proj. Projections

Total revenue and grants 11.0 8.5 8.2 7.7 7.9 9.6 9.8 10.4 11.4 11.7 12.0
Revenue 10.2 8.1 7.9 7.3 7.5 8.3 8.4 9.8 10.9 11.3 11.5
Tax revenue 9.0 7.1 6.8 6.3 6.3 7.3 7.3 8.7 9.8 10.2 10.4
Direct taxes 4.0 3.4 3.0 3.0 3.0 2.8 2.8 3.6 4.0 4.1 4.1
Indirect taxes 4.9 3.7 3.8 3.3 3.4 4.5 4.5 5.1 5.8 6.1 6.2
Domestic indirect taxes 2.5 1.6 1.8 1.8 1.8 2.3 2.3 2.7 3.1 3.4 3.6
Import duties and taxes 2.5 2.1 1.9 1.5 1.5 2.2 2.2 2.4 2.7 2.7 2.6
Nontax revenue 1.3 1.0 1.0 1.0 1.1 1.0 1.1 1.1 1.1 1.1 1.1
Grants 0.8 0.4 0.4 0.4 0.4 1.4 1.3 0.6 0.5 0.4 0.4
Program grants 0.2 0.0 0.0 0.0 0.0 0.8 0.8 0.1 0.1 0.1 0.1
Project grants 0.5 0.4 0.3 0.4 0.4 0.5 0.5 0.5 0.4 0.4 0.4

Total expenditure and net lending (cash basis) 13.8 12.7 10.8 9.4 9.9 11.3 11.5 12.4 13.4 13.7 14.0
Recurrent expenditure 2 8.4 8.4 6.7 5.7 5.9 7.8 7.8 7.8 8.2 8.3 8.4
Defense spending 0.9 1.7 0.9 0.4 0.6 0.5 0.5 0.6 0.6 0.6 0.6
3
Poverty-reducing expenditure 4.1 3.4 2.7 2.4 2.4 3.1 3.1 3.8 4.0 4.1 4.2
Education 2.5 2.1 1.7 1.5 1.5 1.9 1.9 2.2 2.4 2.4 2.4
Health 0.9 0.8 0.6 0.6 0.6 0.7 0.7 1.0 1.0 1.1 1.1
Agriculture 0.5 0.4 0.3 0.3 0.3 0.4 0.4 0.5 0.5 0.5 0.5
Natural resources 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Roads 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Interest payments 0.6 0.6 0.6 0.6 0.6 1.1 1.1 1.1 1.2 1.3 1.3
Domestic interest and charges 0.4 0.4 0.5 0.5 0.5 0.9 0.9 0.9 1.0 1.0 1.1
4
External interest payments 0.2 0.2 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2
Other recurrent expenditure 2.9 2.7 2.5 2.2 2.2 3.1 3.1 2.3 2.4 2.4 2.4
Capital expenditure 5.4 4.3 4.1 3.7 4.0 3.5 3.7 4.6 5.2 5.4 5.6
Central treasury 4.3 3.5 3.3 3.1 3.2 2.6 2.8 3.7 4.4 4.7 4.9
External project grants 0.5 0.4 0.3 0.4 0.4 0.5 0.5 0.5 0.4 0.4 0.4
External project loans 0.6 0.3 0.5 0.3 0.4 0.4 0.4 0.4 0.4 0.3 0.3

Overall balance
Including grants -2.8 -4.2 -2.6 -1.7 -2.0 -1.7 -1.7 -2.1 -2.0 -2.0 -2.0
Excluding grants -3.6 -4.6 -3.0 -2.1 -2.4 -3.1 -3.0 -2.6 -2.5 -2.4 -2.4

Financing 3.3 4.3 2.8 1.7 2.0 1.7 1.7 2.1 2.0 2.0 2.0

Net external financing 0.7 0.1 0.3 0.2 0.2 1.3 1.3 -0.2 0.3 0.3 -0.4
5
Gross borrowing 0.6 0.3 0.6 0.3 0.3 1.9 1.9 0.4 0.8 0.6 0.3
IMF budget support 0.4 0.4 0.0 0.0 0.0 0.0
Project loans 0.6 0.3 0.5 0.3 0.3 0.4 0.4 0.4 0.4 0.3 0.3
Budget Support 0.0 0.0 0.1 0.0 0.0 1.1 1.1 0.0 0.4 0.3 0.0
G20 Debt Service Suspension Initiative 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization, due -0.1 -0.3 -0.3 -0.1 -0.1 -1.3 -1.3 -0.6 -0.6 -0.7 -0.7
Net domestic financing 6 2.1 4.3 2.5 1.5 1.9 0.8 0.8 1.5 1.7 1.7 2.4
Banking system 0.8 3.4 1.6 0.8 0.9 0.2 0.2 0.7 0.8 0.9 1.2
Nonbank sources 1.3 0.9 0.8 0.8 0.9 0.6 0.6 0.8 0.8 0.9 1.2
o/w gross advances from NBE 1.2 1.0 2.2 0.8 1.0 0.0 0.0 0.0 0.0 0.0 0.0
o/w T-bills and T-bonds 2.0 3.3 0.3 0.7 0.9 0.8 0.8 1.5 1.7 1.7 2.4
o/w Other (incl. net deposit withdrawal) -1.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Privatization proceeds 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.4 0.0 0.0 0.0
Other below-the-line operations 7 -0.5 -0.2 -0.2 0.0 0.0 -0.4 -0.4 0.3 0.0 0.0 0.0
Residual gap 0.7 0.7 0.0 0.1 0.3

CBE recapitalization

Total debt outstanding 7.5 7.5 5.5 5.5 4.4 3.6 2.5 1.8
Debt service 0.0 0.0 0.5 0.5 0.4 0.3 0.8 0.6
Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.4 0.4
Interest (included in the budgetary central government) 0.0 0.0 0.5 0.5 0.4 0.3 0.4 0.2

Total net financing (budgetary plus CBE recap. amortization) 1.7 2.0 1.7 1.7 2.1 2.0 2.4 2.4

Memorandum items :
Primary fiscal balance, including grants -2.2 -3.5 -2.0 -1.1 -1.4 -0.6 -0.6 -0.9 -0.8 -0.7 -0.7

Sources: Ethiopian authorities and IMF staff estimates and projections. The Ethiopian fiscal year ends July 7.
1
Government financial statistics are reported by the authorities based on GFSM 1986.
2
Excluding special programs (demobilization and reconstruction).
3
Poverty-reducing spending is defined to include total spending on health, education, agriculture, roads, and food security.
4
External interest and amortization are presented after HIPC debt relief from the World Bank and the African Development Bank.
5
Includes prospective donor financing to close the financing gap.
6
Net domestic financing is derived as a residual financing source in projection years.
7
Negative amounts signify overfinancing. Net FY2024/25 overfinancing reflects expected timeline of DPO2 disbursement.

INTERNATIONAL MONETARY FUND 25

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 3a. The Federal Democratic Republic of Ethiopia: Monetary Survey and Central Bank
Accounts, 2020/21–2028/29
(Millions of birr)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Actual ECF Proj. ECF Proj. Projections

I. Depository Corporation Survey

Monetary survey
Net foreign assets -812 -111,428 -160,098 -262,628 -245,300 -410,162 -348,644 -155,942 15,919 405,652 587,432
Central bank -43,907 -134,219 -191,423 -295,505 -288,909 -563,258 -527,993 -352,235 -193,828 183,119 353,037
Commercial banks 43,095 22,791 31,325 32,877 43,609 153,096 179,349 196,293 209,747 222,532 234,395
Net domestic assets 1,349,078 1,826,738 2,330,946 2,746,639 2,723,192 3,646,467 3,529,137 4,237,699 5,315,350 6,101,526 7,286,804
Domestic credit 1 1,481,844 1,930,622 2,444,436 2,758,665 2,797,752 3,232,045 3,379,647 4,191,046 5,367,185 6,440,915 7,741,557
2
Claims on government (net) 214,269 422,864 573,676 663,686 745,541 692,946 1,620,118 1,764,502 1,968,725 2,220,597 2,629,067
Claims on nongovernment 1,267,575 1,507,758 1,870,760 2,094,978 2,052,211 2,539,099 1,759,529 2,426,544 3,398,461 4,220,318 5,112,489
Public enterprises 603,517 692,126 779,194 849,502 781,894 982,253 285,909 466,629 654,580 927,661 1,161,301
Private sector 664,059 815,631 1,091,566 1,245,477 1,270,317 1,556,846 1,473,620 1,959,915 2,743,881 3,292,657 3,951,188

Broad money 1,348,266 1,715,310 2,170,848 2,484,011 2,477,892 3,236,305 3,180,493 4,081,757 5,331,270 6,507,178 7,874,235
Money 437,392 588,016 706,142 812,640 822,499 1,032,661 1,026,848 1,301,311 1,672,245 2,031,491 2,446,147
Currency outside banks 133,621 173,383 211,637 255,097 205,441 297,559 229,180 271,487 317,013 373,784 435,688
Demand deposits 303,771 414,633 494,505 557,543 617,057 735,102 797,668 1,029,824 1,355,232 1,657,708 2,010,459
Quasi money 910,874 1,127,294 1,464,706 1,671,370 1,655,393 2,203,644 2,153,644 2,780,447 3,659,025 4,475,686 5,428,088
Savings deposits 816,380 1,016,049 1,315,260 1,499,114 1,461,904 1,976,531 1,902,662 2,456,418 3,232,608 3,954,098 4,795,508
Time deposits 94,494 111,245 149,446 172,256 193,489 227,113 250,982 324,028 426,416 521,589 632,580

Central bank
Net foreign assets -43,907 -134,219 -191,423 -295,505 -288,909 -563,258 -527,993 -352,235 -193,828 183,119 353,037
Foreign assets 125,860 79,820 56,154 57,481 82,159 365,203 451,433 755,241 1,027,841 1,517,010 1,717,160
Foreign liabilities 169,767 214,038 247,577 352,986 371,069 928,462 979,427 1,107,476 1,221,669 1,333,891 1,364,123

Net domestic assets 308,209 496,717 669,895 789,656 762,133 1,175,317 1,133,313 1,116,194 1,103,620 895,857 927,956
Domestic credit 301,662 371,039 566,123 661,123 673,576 573,598 564,565 461,411 450,980 244,731 444,605
Government (net) 245,019 326,216 521,300 616,300 632,253 616,300 632,253 632,253 632,253 632,253 632,253
Other items (net) 6,547 125,678 103,772 128,533 88,557 601,719 568,748 654,782 652,641 651,126 483,351
Reserve money 264,302 362,499 478,472 494,151 473,223 612,059 605,319 763,959 909,793 1,078,976 1,280,993
Currency outside banks 133,621 173,383 211,637 255,097 205,441 297,559 229,180 271,487 317,013 373,784 435,688
Commercial bank reserves 130,681 189,116 266,835 239,054 267,782 314,500 376,139 492,472 592,780 705,193 845,305
Cash in vault 30,088 34,828 42,679 45,420 51,855 59,755 72,740 95,237 114,635 136,374 163,470
Reserve deposit 100,593 111,346 127,177 143,739 143,739 162,397 162,397 182,696 205,534 231,011 289,978

(Annual percentage change, unless otherwise indicated)

Monetary survey
Net foreign assets -90.2 13617.2 43.7 64.0 53.2 56.2 42.1 -55.3 -110.2 2448.2 44.8

Net domestic assets 29.0 35.4 27.6 17.8 16.8 32.8 29.6 20.1 25.4 14.8 19.4
Domestic credit 1 25.9 30.3 26.6 12.9 14.5 17.2 20.8 24.0 28.1 20.0 20.2
2
Claims on government (net) 56.3 97.4 35.7 15.7 30.0 4.4 117.3 8.9 11.6 12.8 18.4
Claims on nongovernment 21.9 18.9 24.1 12.0 9.7 21.2 -14.3 37.9 40.1 24.2 21.1
Public enterprises 11.0 14.7 12.6 9.0 0.3 15.6 -63.4 63.2 40.3 41.7 25.2
Private sector 33.8 22.8 33.8 14.1 16.4 25.0 16.0 33.0 40.0 20.0 20.0
Broad money 29.9 27.2 26.6 14.4 14.1 30.3 28.4 28.3 30.6 22.1 21.0
Money 21.3 34.4 20.1 15.1 16.5 27.1 24.8 26.7 28.5 21.5 20.4
Quasi money 34.5 23.8 29.9 14.1 13.0 31.8 30.1 29.1 31.6 22.3 21.3

Memorandum items:
Base money growth 7.2 37.2 32.0 3.3 -1.1 23.9 27.9 26.2 19.1 18.6 18.7
Nominal GDP growth 28.7 41.8 41.7 33.9 33.6 35.7 34.9 26.7 22.2 20.3 18.3
Excess reserve deposit (billions of birr) 31,976 22,206 66,804 37,609 33,241 49,033 96,808 130,516 127,147 139,481 161,137
Percent of deposits 2.6 2.1 3.4 1.7 1.5 1.7 3.3 3.4 2.5 2.3 2.2
Money multiplier (broad money/reserve money) 5.10 4.73 4.54 5.03 5.24 5.29 5.25 5.34 5.86 6.03 6.15
Velocity (GDP/broad money) 3.05 3.59 4.02 4.70 4.70 4.90 4.94 4.88 4.56 4.50 4.40
Currency-deposit ratio 0.110 0.112 0.108 0.114 0.090 0.101 0.078 0.071 0.063 0.061 0.059
Birr per U.S. dollar (end of period) 43.7 52.0 54.6 … … … … … … … …
Nominal GDP (millions of birr) 4,108,684 6,157,538 8,722,308 11,676,013 11,648,770 15,844,489 15,708,608 19,904,296 24,332,543 29,281,911 34,646,424

Sources: NBE and IMF staff estimates and projections.

1 Domestic credit projections for 24/25 include impact of the CBE recapitalization.
2 Claims on the general government by the banking system less deposits of the general government with the banking system.

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 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 3b. The Federal Democratic Republic of Ethiopia: Monetary Survey and Central Bank
Accounts, 2020/21‒2028/29
(In percent of GDP)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Actual ECF Proj. ECF Proj. Projections

Percent of GDP
Monetary survey
Net foreign assets 0.0 -1.8 -1.8 -2.2 -2.1 -2.6 -2.2 -0.8 0.1 1.4 1.7
Central bank -1.1 -2.2 -2.2 -2.5 -2.5 -3.6 -3.4 -1.8 -0.8 0.6 1.0
Commercial banks 1.0 0.4 0.4 0.3 0.4 1.0 1.1 1.0 0.9 0.8 0.7

Net domestic assets 32.8 29.7 26.7 23.5 23.4 23.0 22.5 21.3 21.8 20.8 21.0
1
Domestic credit 36.1 31.4 28.0 23.6 24.0 20.4 21.5 21.1 22.1 22.0 22.3
Claims on government (net) 2 5.2 6.9 6.6 5.7 6.4 4.4 10.3 8.9 8.1 7.6 7.6
Claims on nongovernment 30.9 24.5 21.4 17.9 17.6 16.0 11.2 12.2 14.0 14.4 14.8
Public enterprises 14.7 11.2 8.9 7.3 6.7 6.2 1.8 2.3 2.7 3.2 3.4
Private sector 16.2 13.2 12.5 10.7 10.9 9.8 9.4 9.8 11.3 11.2 11.4

Broad money 32.8 27.9 24.9 21.3 21.3 20.4 20.2 20.5 21.9 22.2 22.7
Money 10.6 9.5 8.1 7.0 7.1 6.5 6.5 6.5 6.9 6.9 7.1
Currency outside banks 3.3 2.8 2.4 2.2 1.8 1.9 1.5 1.4 1.3 1.3 1.3
Demand deposits 7.4 6.7 5.7 4.8 5.3 4.6 5.1 5.2 5.6 5.7 5.8
Quasi money 22.2 18.3 16.8 14.3 14.2 13.9 13.7 14.0 15.0 15.3 15.7
Savings deposits 19.9 16.5 15.1 12.8 12.5 12.5 12.1 12.3 13.3 13.5 13.8
Time deposits 2.3 1.8 1.7 1.5 1.7 1.4 1.6 1.6 1.8 1.8 1.8

Central bank
Net foreign assets -1.1 -2.2 -2.2 -2.5 -2.5 -3.6 -3.4 -1.8 -0.8 0.6 1.0
Foreign assets 3.1 1.3 0.6 0.5 0.7 2.3 2.9 3.8 4.2 5.2 5.0
Foreign liabilities 4.1 3.5 2.8 3.0 3.2 5.9 6.2 5.6 5.0 4.6 3.9

Net domestic assets 7.5 8.1 7.7 6.8 6.5 7.4 7.2 5.6 4.5 3.1 2.7
Domestic credit 7.3 6.0 6.5 5.7 5.8 3.6 3.6 2.3 1.9 0.8 1.3
Government (net) 6.0 5.3 6.0 5.3 5.4 3.9 4.0 3.2 2.6 2.2 1.8
Other items (net) 0.2 2.0 1.2 1.1 0.8 3.8 3.6 3.3 2.7 2.2 1.4

Reserve money 6.4 5.9 5.5 4.2 4.1 3.9 3.9 3.8 3.7 3.7 3.7
Currency outside banks 3.3 2.8 2.4 2.2 1.8 1.9 1.5 1.4 1.3 1.3 1.3
Commercial bank reserves 3.2 3.1 3.1 2.0 2.3 2.0 2.4 2.5 2.4 2.4 2.4
Cash in vault 0.7 0.6 0.5 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5
Reserve deposit 2.4 1.8 1.5 1.2 1.2 1.0 1.0 0.9 0.8 0.8 0.8

Nominal GDP (millions of birr) 4,108,684 6,157,538 8,722,308 11,676,013 11,648,770 15,844,489 15,708,608 19,904,296 24,332,543 29,281,911 34,646,424

Sources: NBE and IMF staff estimates and projections.

1 Domestic credit projections for 24/25 include impact of the CBE recapitalization.
2 Claims on the general government by the banking system less deposits of the general government with the banking system.

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 4a. The Federal Democratic Republic of Ethiopia: Summary Balance of Payments,
2020/21–2028/29
(In millions of U.S. dollars, unless otherwise indicated)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Actual ECF Proj. ECF Proj. Projections

(Millions of U.S. dollars, unless otherwise indicated)

1
Current account balance -3,169 -5,134 -4,635 -5,945 -5,520 -6,078 -6,205 -4,734 -3,989 -3,685 -3,801
Excl. official transfers 1 -4,538 -6,270 -5,729 -7,084 -6,659 -7,479 -7,608 -6,300 -5,641 -5,385 -5,552

Trade balance -10,671 -13,991 -13,512 -13656 -13,440 -15,127 -14,807 -15,216 -15,779 -16,684 -17,635
Exports of goods 3,617 4,101 3,618 3,560 3,754 3,641 3,882 4,496 5,742 7,229 8,124
Imports of goods -14,288 -18,092 -17,130 -17,216 -17,194 -18,768 -18,689 -19,712 -21,521 -23,913 -25,760

Services (net) 587 1,213 1,399 1535 1,535 1,850 1,850 2,300 2,400 2,521 2,537
Exports 4,895 6,350 7,174 7,650 7,650 8,450 8,450 9,380 10,505 11,750 12,166
Imports -4,308 -5,137 -5,775 -6,115 -6,115 -6,600 -6,600 -7,080 -8,105 -9,229 -9,630

Income (net) 1 -572 -574 -413 -934 -934 -1,052 -1,052 -864 -867 -853 -833

Private transfers (net) 6,118 7,082 6,798 5,971 6,180 6,850 6,401 7,481 8,605 9,630 10,380
Official transfers (net) 1 1,369 1,136 1,093 1139 1,139 1,401 1,403 1,566 1,652 1,700 1,751
Capital account balance 1 3,467 1,975 2,929 4,040 4,029 3,407 3,434 4,686 4,663 5,615 6,222
Foreign direct investment (net, incl. privatization) 3,970 3,308 3,428 3,363 3,352 3,700 3,727 4,671 4,711 5,493 6,148
Other investment (net) 1 -504 -1,333 -499 676 676 -293 -293 15 -48 122 74
Federal government 706 274 1,944 405 405 137 137 940 612 353 687
Disbursements 1 973 616 2,372 1,090 1,090 1,855 1,855 1,830 1,532 1,435 1,900
Amortization 1 -267 -343 -429 -685 -685 -1,718 -1,718 -890 -920 -1,082 -1,214
Other public sector 1,2 -1,070 -1,668 -860 844 844 -430 -430 -925 -660 -230 -613
Disbursements 420 291 541 2,536 2,536 914 914 300 319 545 212
Amortization 1 -1,490 -1,959 -1,401 -1,692 -1,692 -1,345 -1,345 -1,226 -979 -775 -825
Private sector borrowing (net) 153 0 0 0 0 0 0 0 0 0 0
Other (net) -293 62 -1,583 -572 -572 0 0 0 0 0 0

Errors and omissions -339 520 897 0 0 0 0 0 0 0 0

Overall balance -41 -2,639 -809 -1906 -1,491 -2,671 -2,771 -48 674 1,930 2,421

Financing 41 2,639 809 1,906 1,491 2,671 2,771 48 -674 -1,930 -2,421
Central bank (net; increase –) 238 1,371 469 -197 -615 -134 -40 -1,689 -1,526 -2,643 -1,298
Reserves (increase –) 244 1,371 469 15 -403 -1,781 -1,696 -2,148 -1,986 -3,084 -1,259
Liabilities (increase +) -6 0 0 -212 -212 1,647 1,656 459 459 441 -39
IMF credit (net) -6 0 0 -212 -212 1,647 1,656 459 459 441 -39
of which: IMF Rapid Financing Instrument (RFI) … … … … … … … … … … …
SDR allocation 0 397 0 0 0 0 0 0 0 0 0
Prospective donor financing 0 0 0 0 0 1,500 1,500 1,000 700 550 0
of which: grants 0 0 0 0 0 1,000 1,000 0 0 0 0
Exceptional Financing 488 720 475 2,103 2,106 1,905 1,911 737 152 164 -1,123
Debt service restructuring 3,4 250 663 475 2,103 2,106 1,905 1,911 737 152 164 -1,123
G20 Debt Service Suspension Initiative 3 231 57 0 0 0 0 0 0 0 0 0
IMF CCR Trust debt relief 5 7 1 0 0 0 0 0 0 0 0 0
Commercial banks (net; increase –) -685 548 -135 0 0 -600 -600 0 0 0 0

(Annual percentage change, unless otherwise indicated)

Memorandum items :
Exports of goods 21.1 13.4 -11.8 -1.6 3.7 2.3 3.4 15.8 27.7 25.9 12.4
Imports of goods 2.9 26.6 -5.3 0.5 0.4 9.0 8.7 5.5 9.2 11.1 7.7
Services exports 4.4 29.7 13.0 6.6 6.6 10.5 10.5 11.0 12.0 11.9 3.5
Services imports 0.4 19.2 12.4 5.9 5.9 7.9 7.9 7.3 14.5 13.9 4.3
Private transfers 18.0 15.7 -4.0 -12.2 -9.1 14.7 3.6 16.9

Exports of goods and services (percent of GDP) 7.6 8.2 6.6 5.4 5.5 8.9 9.0 9.6 10.0 10.3 9.8
Imports of goods and services (percent of GDP) -16.7 -18.3 -14.0 -11.2 -11.2 -18.6 -18.4 -18.6 -18.2 -18.0 -17.1
Trade balance (percent of GDP) -9.6 -11.0 -8.3 -6.5 -6.5 -11.1 -10.8 -10.5 -9.7 -9.0 -8.5
Private transfers (net, percent of GDP) 5.5 5.6 4.2 2.9 3.0 5.0 4.7 5.2 5.3 5.2 5.0
Gross official reserves (millions U.S. dollars) 2,866 1,495 1,026 1,011 1,429 2,793 3,126 5,273 7,259 10,343 11,602
(Months of following year's imports of goods and services) 1.5 0.8 0.5 0.5 0.7 1.2 1.4 2.1 2.6 3.5 3.6

Sources: Ethiopian authorities and IMF staff estimates and projections.

1
Excludes prospective donor financing and/or exceptional financing.
2
Includes net borrowing by state-owned enterprises and the central bank's long-term non-IMF liabilities.
3
Staff estimates.
4
Represents standstill agreement with official bilateral creditors as for debt service falling due in CY2023 and CY2024 (staff estimate).
5
Currently available on debt service to the Fund falling due until January 10, 2022. Subsequent relief is contingent on availability of financing for the Trust.

28 INTERNATIONAL MONETARY FUND

 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 4b. The Federal Democratic Republic of Ethiopia: Summary Balance of Payments,
2020/21–2028/29
(In percent of GDP)

2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29

Actual ECF IMF Staff ECF IMF Staff Projections

(Percent of GDP, unless otherwise indicated)

Current account balance 1 -2.8 -4.0 -2.8 -2.8 -2.7 -4.5 -4.5 -3.3 -2.4 -2.0 -1.8
Excl. official transfers 1 -4.1 -4.9 -3.5 -3.4 -3.2 -5.5 -5.5 -4.4 -3.5 -2.9 -2.7

Trade balance -9.6 -11.0 -8.3 -6.5 -6.5 -11.1 -10.8 -10.5 -9.7 -9.0 -8.5
Exports of goods 3.3 3.2 2.2 1.7 1.8 2.7 2.8 3.1 3.5 3.9 3.9
Imports of goods -12.8 -14.3 -10.5 -8.2 -8.3 -13.8 -13.6 -13.7 -13.2 -13.0 -12.5

Services (net) 0.5 1.0 0.9 0.7 0.7 1.4 1.3 1.6 1.5 1.4 1.2
Exports 4.4 5.0 4.4 3.7 3.7 6.2 6.2 6.5 6.4 6.4 5.9
Imports -3.9 -4.1 -3.5 -2.9 -2.9 -4.8 -4.8 -4.9 -5.0 -5.0 -4.7

Income (net) 1 -0.5 -0.5 -0.3 -0.4 -0.4 -0.8 -0.8 -0.6 -0.5 -0.5 -0.4

Private transfers (net) 5.5 5.6 4.2 2.9 3.0 5.0 4.7 5.2 5.3 5.2 5.0

Official transfers (net) 1 1.2 0.9 0.7 0.5 0.5 1.0 1.0 1.1 1.0 0.9 0.8

Capital account balance 1 3.1 1.6 1.8 1.9 1.9 2.5 2.5 3.2 2.9 3.0 3.0
Foreign direct investment (net, incl. privatization) 3.6 2.6 2.1 1.6 1.6 2.7 2.7 3.2 2.9 3.0 3.0
Other investment (net) 1,2 -0.5 -1.1 -0.3 0.3 0.3 -0.2 -0.2 0.0 0.0 0.1 0.0
Federal government 0.6 0.2 1.2 0.2 0.2 0.1 0.1 0.7 0.4 0.2 0.3
1
Disbursements 0.9 0.5 1.4 0.5 0.5 1.4 1.4 1.3 0.9 0.8 0.9
Amortization 1 -0.2 -0.3 -0.3 -0.3 -0.3 -1.3 -1.3 -0.6 -0.6 -0.6 -0.6
Other public sector 1 -1.0 -1.3 -0.5 0.4 0.4 -0.3 -0.3 -0.6 -0.4 -0.1 -0.3
Disbursements 0.3 0.2 0.3 1.9 1.8 0.6 0.6 0.2 0.2 0.3
Amortization 1 -1.2 -1.2 -0.7 -1.2 -1.2 -0.9 -0.9 -0.8 -0.6 -0.4
Private sector borrowing (net) 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other (net) -0.3 0.0 -1.0 -0.3 -0.3 0.0 0.0 0.0 0.0 0.0 0.0

Errors and omissions -0.3 0.4 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Overall balance 0.0 -2.1 -0.5 -0.9 -0.7 -2.0 -2.0 0.0 0.4 1.0 1.2

Financing 0.0 2.1 0.5 0.9 0.7 2.0 2.0 0.0 -0.4 -1.0 -1.2
Central bank (net; increase –) 0.2 1.1 0.3 -0.1 -0.3 -0.1 0.0 -1.2 -0.9 -1.4 -0.6
Reserves (increase –) 0.2 1.1 0.3 0.0 -0.2 -1.3 -1.2 -1.5 -1.2 -1.7 -0.6
Liabilities (increase +) 0.0 0.0 0.0 -0.1 -0.1 1.2 1.2 0.3 0.3 0.2 0.0
IMF credit (net) 0.0 0.0 0.0 -0.1 -0.1 1.2 1.2 0.3 0.3 0.2 0.0
of which: IMF Rapid Financing Instrument (RFI) … … … … … … … …
SDR allocation 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Prospective donor financing 0.0 0.0 0.0 0.0 0.0 1.1 1.1 0.7 0.4 0.3 0.0
of which: grants 0.0 0.0 0.0 0.0 0.0 0.7 0.7 0.0 0.0 0.0 0.0
Exceptional Financing 0.4 0.6 0.3 1.0 1.0 1.4 1.4 0.5 0.1 0.1 -0.5
3
Debt service restructuring 0.2 0.5 0.3 1.0 1.0 1.4 1.4 0.5 0.1 0.1 -0.5
Reprofiling of external sovereign deposits at NBE, 2020 0.3 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0
4
Standstill agreement with Official Bilateral Creditors 0.0 0.0 0.9 0.9 0.6 0.6 0.1 -0.2 -0.6
Other restructuring (incl. pros. G20 CF) 0.0 0.0 0.0 0.0 0.0 0.8 0.8 0.4 0.3 0.7 0.0
G20 Debt Service Suspension Initiative (DSSI) 3 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
5
IMF CCR Trust debt relief 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 N.A. N.A.

Commercial banks (net; increase –) -0.6 0.4 -0.1 0.0 0.0 -0.4 -0.4 0.0 0.0 0.0 0.0

Gross official reserves 2.6 1.2 0.6 0.5 0.7 2.1 2.3 3.7 4.4 5.6 5.6
Sources: Ethiopian authorities and IMF staff estimates and projections.
1
Excludes prospective donor financing and/or exceptional financing.
2
Includes net borrowing by state-owned enterprises and the central bank's long-term non-IMF liabilities.
3
Staff estimates.
4
Represents standstill agreement with official bilateral creditors as for debt service falling due in CY2023 and CY2024 (staff estimate).
5
Currently available on debt service to the Fund falling due until January 10, 2022. Subsequent relief is contingent on availability of financing for the Trust.

INTERNATIONAL MONETARY FUND 29

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 5. The Federal Democratic Republic of Ethiopia: Financial Soundness Indicators of

the Banking Sector
(Percent, unless otherwise indicated)

Jun-21 Jun-22 Jun-23 Mar-24 Jun-24

Capital adequacy
Capital to Risk-Weighted Assets 15.2 16.3 14.7 15.7 15.4
Capital to Assets 6.9 7.5 7.8 8.4 8.2

Asset quality
NPLs to Total Loans 1 3.5 3.9 3.6 4.7 3.9
NPLs Net of Provisions to Capital 6.0 -4.7 14.7 15.7 15.4

Earning and profitability

Return on Assets 1.9 2.4 2.0 1.7 2.0
2
Return on Equity 26.6 32.6 25.7 21.5 24.6

Liquidity
Liquid Assets to Total Assets 15.5 21.0 19.3 16.4 17.8
Liquid Assets to Total Deposits 20.5 27.1 24.3 20.7 22.4

Sources: National Bank of Ethiopia

1
Reported NPLs exclude non-performing government-guaranteed SOE debts, and are not adjusted for the results of the
2021 CBE AQR.
2
The average capital used to calculate the ROE excludes retained earning and profit & loss.

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 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 6. The Federal Democratic Republic of Ethiopia: External Financing Requirements and
Sources, 2023/24–2027/28
(In millions of U.S. dollars, unless otherwise indicated)

2023/24 2024/25 2025/26 2026/27 2027/28 Cumulative

ECF Proj. ECF Proj. Projections (FY2024/25-27/28)

External financing requirement 9,692 9,684 13,146 13,189 10,620 9,582 10,403 43,794
Current account deficit, excl. official transfers 7,117 6,692 7,479 7,608 6,300 5,641 5,385 24,934
Federal government amortization 685 685 1,718 1,718 890 920 1,082 4,610
1
Other public sector amortization 1,692 1,692 1,345 1,345 1,226 979 775 4,325
Repayments to Fund 212 212 223 223 56 57 75 411
Change in gross reserves (increase +) -15 403 1,781 1,696 2,148 1,986 3,084 8,914
Change in commercial bank reserves (increase +) 0 0 600 600 0 0 0 600

External financing sources 6,417 6,406 6,469 6,496 6,151 6,562 7,473 26,682
Foreign direct investment, excl. privatization 3,363 3,352 3,700 3,727 4,021 4,711 5,493 17,952
External loans to Federal government 1,090 1,090 1,855 1,855 1,830 1,532 1,435 6,652
Other public sector external borrowing 2,536 2,536 914 914 300 319 545 2,079
Other (net, incl. change in commercial banks' NFA) -572 -572 0 0 0 0 0 0

Financing gap (need for financing +) 3,275 3,278 6,676 6,693 4,468 3,020 2,930 17,112

Expected financing 3,275 3,278 2,257 2,265 2,308 1,313 550 6,436
Official transfers 1,139 1,139 1,401 1,403 1,566 1,652 1,700 6,322
Privatization proceeds 0 0 0 0 650 0 0 650
Reprofiling of external sovereign deposits at NBE, 2020 2 288 288 0 0 0 0 0 0
3
Standstill agreement with Official Bilateral Creditors 1,815 1,819 856 862 92 -339 -1,150 -536
Accumulation of arrears 33 33

Residual gap 0 0 4,419 4,428 2,161 1,707 2,379 10,675

IMF 0 0 1,870 1,879 515 516 516 3,425
Disbursements 0 0 1,870 1,879 515 516 516 3,425
Prospective debt restructuring 0 0 1,050 1,050 646 491 1,313 3,500
Prospective budget support 0 0 1,500 1,500 1,000 700 550 3,750

Memorandum items :
Gross official reserves (millions U.S. dollars) 1,011 1,429 2,793 3,126 5,273 7,259 10,343
(Months of following year's imports of goods and services) 0 0.7 1.2 1.4 2.1 2.6 3.5

Sources: IMF staff projections and estimates.

1
Includes guaranteed and non-guaranteed SOE loans and long-term debt of National Bank of Ethiopia (NBE).
2
Represents reprofiling that was finalized under the previous ECF/EFF program and through recent negotiation.
3 Represents standstill agreement with official bilateral creditors as for debt service falling due in CY2023 and CY2024 (staff estimate).

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 7. The Federal Democratic Republic of Ethiopia: Access and Phasing Under the
Extended Credit Facility

Amount Percent of quota1

Date of availability Condition for disbursement Percent share Specific
SDR million Cumulative
of total review

July 29, 2024 Executive Board approval of the ECF arrangement 766.75 30.0 255.0 255.0

September 10, 2024 Observance of continuous performance criteria (PCs) and PCs 255.60 10.0 85.0 340.0
for August 16, 2024 and completion of the first review

December 10, 2024 Observance of continuous PCs and PCs for end-September 2024 191.70 7.5 63.8 403.7
and completion of the second review

April 15, 2025 Observance of continuous PCs and PCs for end-December 2024 191.70 7.5 63.8 467.5
and completion of the third review

October 15, 2025 Observance of continuous PCs and PCs for end-June 2025 191.70 7.5 63.8 531.2
and completion of the fourth review

April 15, 2026 Observance of continuous PCs and PCs for end-December 2025 191.70 7.5 63.8 595.0
and completion of the fifth review

October 15, 2026 Observance of continuous PCs and PCs for end-June 2026 191.70 7.5 63.8 658.7
and completion of the sixth review

April 15, 2027 Observance of continuous PCs and PCs for end-December 2026 191.70 7.5 63.8 722.5
and completion of the seventh review

October 15, 2027 Observance of continuous PCs and PCs for end-June 2027 191.70 7.5 63.8 786.2
and completion of the eighth review

April 15, 2028 Observance of continuous PCs and PCs for end-December 2027 191.70 7.5 63.8 850.0
and completion of the ninth review

Total 2555.95 100.0 850.0

Source: IMF staff calculations.

1
Ethiopia's quota is SDR 300.7 million.

32 INTERNATIONAL MONETARY FUND

 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 8. The Federal Democratic Republic of Ethiopia: Indicators of Fund Credit,

2023/24–2038/391
(In millions of SDR unless stated otherwise)

2023/24 2024/25 2025/26 2026/27 2027/28 2028/29 2029/30 2030/31 2031/32 2032/33 2033/34 2034/35 2035/36 2036/37 2037/38 2038/39

Fund obligations based on existing credit

(In millions of SDR)
Principal 7.5 165.4 41.8 41.8 55.1 28.4 34.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Charges and interest (excl. obligations to SDR department) 0.0 9.0 3.4 2.6 1.8 1.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Fund obligations based on existing and prospective credit 2

(In millions of SDR) 7.5 174.4 45.1 44.4 57.0 29.5 156.0 300.3 377.0 453.7 587.9 313.1 210.9 134.2 57.5 0.0
Principal 7.5 165.4 41.8 41.8 55.1 28.4 155.7 300.3 377.0 453.7 587.9 313.1 210.9 134.2 57.5 0.0
PRGT 0.0 0.0 26.7 26.7 40.1 13.4 148.1 300.3 377.0 453.7 587.9 313.1 210.9 134.2 57.5 0.0
EFF 7.5 15.0 15.0 15.0 15.0 15.0 7.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
RFI 0.0 150.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Charges and interest (excl. obligations to SDR department) 0.0 9.0 3.4 2.6 1.8 1.1 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total obligations based on existing and prospective credit 2

In millions of SDRs 7.5 174.4 45.1 44.4 57.0 29.5 156.0 300.3 377.0 453.7 587.9 313.1 210.9 134.2 57.5 0.0
In millions of U.S. dollars 10.0 231.9 60.2 59.3 76.3 39.5 209.0 402.4 505.1 607.9 787.7 419.5 282.5 179.8 77.1 0.0
In percent of general government revenue 0.1 2.0 0.4 0.3 0.4 0.2 0.8 1.3 1.5 1.6 1.9 0.9 0.6 0.3 0.1 0.0
In percent of exports of goods and services 0.1 1.9 0.4 0.4 0.4 0.2 1.0 1.7 1.9 2.0 2.4 1.1 0.7 0.4 0.2 0.0
In percent of total external debt service 0.7 6.7 2.0 1.9 1.9 1.0 5.6 14.3 17.2 20.1 27.3 14.4 10.6 7.3 3.1 0.0
In percent of gross international reserves 0.7 7.4 1.1 0.8 0.7 0.3 1.6 2.6 2.7 3.0 3.4 1.6 1.0 0.6 0.2 0.0
In percent of GDP 0.0 0.2 0.0 0.0 0.0 0.0 0.1 0.2 0.2 0.2 0.2 0.1 0.1 0.0 0.0 0.0
In percent of quota 2.5 58.0 15.0 14.8 18.9 9.8 51.9 99.9 125.4 150.9 195.5 104.1 70.1 44.6 19.1 0.0

Outstanding Fund credit (end of period)

In millions of SDRs 366.7 1,607.1 1,948.7 2,290.4 2,618.6 2,590.2 2,434.6 2,134.3 1,757.2 1,303.6 715.7 402.6 191.7 57.5 0.0 0.0
In millions of U.S. dollars 488.2 2,137.7 2,598.3 3,061.1 3,508.5 3,470.5 3,261.9 2,859.5 2,354.4 1,746.5 958.9 539.4 256.8 77.1 0.0 0.0
In percent of general government revenue 3.2 21.0 19.0 17.6 17.1 14.8 12.3 9.7 7.2 4.8 2.4 1.2 0.5 0.1 0.0 0.0
In percent of exports of goods and services 4.3 17.3 18.7 18.8 18.5 17.1 15.0 11.8 8.9 5.9 2.9 1.5 0.6 0.2 0.0 0.0
In percent of total external debt 1.4 5.7 6.6 7.5 8.3 8.4 8.0 7.0 5.8 4.3 2.3 1.3 0.6 0.2 0.0 0.0
In percent of gross international reserves 34.2 68.4 49.3 42.2 33.9 29.9 25.1 18.3 12.8 8.6 4.2 2.1 0.9 0.2 0.0 0.0
In percent of GDP 0.2 1.6 1.8 1.9 1.9 1.7 1.4 1.1 0.8 0.6 0.3 0.1 0.1 0.0 0.0 0.0
In percent of quota 121.9 534.4 648.1 761.7 870.8 861.4 809.6 709.8 584.4 433.5 238.0 133.9 63.8 19.1 0.0 0.0
PRGT 44.4 511.9 630.6 749.2 863.3 858.9 809.6 709.8 584.4 433.5 238.0 133.9 63.8 19.1 0.0 0.0
EFF 27.5 22.5 17.5 12.5 7.5 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
RFI 50.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net use of Fund credit (millions of SDR) -7.5 1,240.4 341.6 341.6 328.3 -28.4 -155.7 -300.3 -377.0 -453.7 -587.9 -313.1 -210.9 -134.2 -57.5 0.0
Disbursements 0.0 1,405.8 383.4 383.4 383.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Repayments and repurchases 7.5 165.4 41.8 41.8 55.1 28.4 155.7 300.3 377.0 453.7 587.9 313.1 210.9 134.2 57.5 0.0

Debt relief under the CCRT 3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Memorandum items:
General government revenue (billions of birr) 871.4 1,327.2 1,958.3 2,653.6 3,314.2 3,994.4 4,669.6 5,447.3 6,314.4 7,362.7 8,489.0 9,766.8 11,195.5 12,856.4 14,626.2 16,564.4
Exports of goods and services (billions of U.S. dollars) 11.4 12.3 13.9 16.2 19.0 20.3 21.7 24.2 26.5 29.8 33.3 37.2 40.7 44.7 49.1 53.7
Total debt service (millions of U.S. dollars)
Gross international reserves (billions of U.S. dollars) 1.4 3.1 5.3 7.3 10.3 11.6 13.0 15.6 18.4 20.4 23.1 25.9 29.3 32.2 35.6 40.6
In months of prospective imports 0.7 1.4 2.1 2.6 3.5 3.6 3.7 4.2 4.4 4.5 4.7 4.8 5.0 5.0 5.2 5.5
Nominal GDP (billions of U.S. dollars) 208.2 137.2 144.3 163.1 184.4 206.4 229.5 255.7 282.6 312.7 344.6 379.5 416.6 456.8 499.9 545.4
SDR per U.S. dollar (period average) 0.8 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7 0.7
Quota (millions of SDR) 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7 300.7

Source: IMF staff estimates and projections.

1
Year ending in June.
2
Including the proposed disbursements under the ECF.
3
Currently available on debt service to the Fund falling due until October 15, 2021. Subsequent relief is contingent on availability of financing for the Trust.

INTERNATIONAL MONETARY FUND 33

 Table 9. The Federal Democratic Republic of Ethiopia: Quantitative Performance Criteria and Indicative Targets,
34

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

June 2024–September 2025
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(All figures in millions of Ethiopian birr, unless otherwise specified)

 Table 10. The Federal Democratic Republic of Ethiopia: Structural Benchmarks
(modified SBs in bold text)

Measure Rationale Board Approved Proposed New Status

Target Date Target Date

1. Council of Ministers to adopt and publish a medium-term revenue Strengthen tax revenue End-September Met
strategy (drawing on FAD TA) specifying tax policy and revenue mobilization 2024
administration compliance measures with a clear timeframe.

2. NBE to issue an order to all banks not in compliance with the Support financial sector End-September Met
regulatory threshold on net open position to develop plans to stability 2024
ensure full compliance with the regulation by end-June 2025.

3. Publish IFRS-based and audited financial statements for 2022/23 Strengthen SOE finances End-September Met
for Ethiopian Electric Power (EEP), Ethiopian Electric Utility (EEU), and reduce vulnerability 2024
and Ethiopia Petroleum Supply Enterprise (EPSE); and for 2021/22 to corruption
for Ethiopian Sugar Corporation (ESC), Ethiopian Railway
Corporation (ERC), Ethiopian Engineering Group (EEG), and
Ethiopian Construction Works (ECW).

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

4. NBE to implement an emergency liquidity assistance framework Strengthen financial crisis End-September Not Met
for financial stability purposes provided at the discretion of NBE to and stability framework 2024
viable (solvent) banks with adequate collateral and a funding plan and support monetary
INTERNATIONAL MONETARY FUND

to recover the liquidity situation of the bank. policy implementation

5. Implement the first quarterly electricity tariff increase under the Strengthen SOE finances End-September Met
multi-year plan as approved by the Council of Ministers in June 2024
2024.

6. The NBE to finalize and publish audited financial statements Update and modernize End-December End-January Reset
for 2021/22–2022/23. governance of the NBE 2024 2025
35
 Table 10. The Federal Democratic Republic of Ethiopia: Structural Benchmarks (concluded)
36

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

INTERNATIONAL MONETARY FUND

Measure Rationale Board Approved Proposed New Status

Target Date Target Date

7. NBE to submit to Parliament comprehensive draft legal Update and modernize End-December
amendments to the NBE Proclamation, to be prepared in governance of the NBE 2024
consultation with IMF staff, with respect to the NBE’s
mandate, decision-making structure (internal check and
balances and collegial implementation of decisions),
accountability, transparency, and autonomy.

8. Ministry of Finance to start publication of a mid-year review Strengthen fiscal End-April-2025 Proposed
on the implementation of the budget as of the middle of the transparency
fiscal year and a quarterly budget execution report for prior
quarter, both for Federal Government.

9. National Bank of Ethiopia to repeal directive Reduce financial End-June 2025 Proposed
(MFAD/TRBO/001/2022) obliging financial institutions to buy repression and
Treasury Bonds effective immediately. promote bond market
development

10. Ministry of Finance to issue instruction to Ethiopian Strengthen fiscal End-June 2025 Proposed
Petroleum Supply Enterprise to start remitting all federal fuel transparency and
taxes to the Ministry of Revenue by December 2025. secure budget revenue

11. Council of Ministers to submit draft FY2025/26 budget for Ensure fiscal targets End-June 2025 Proposed
the Federal Government in line with IMF program’s macro- consistent with
framework. program objectives
 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 11. The Federal Democratic Republic of Ethiopia: Debt Composition

(In millions of US dollars, unless otherwise specified)

Creditor Profile At end-June 2023

Total debt 64,240
External 28,897
Multilateral Creditors 15,269
IMF 709
World Bank 11,589
AfDB/AfDF 2,198
Others 773
o/w IFAD 410
Bilateral official creditors 1/ 10,531
Paris Club 1,853
Non-Paris Club 8,678
Commercial creditors 2/ 3,097
Domestic 35,343
Memo Items:
Collateralized debt 0
Nominal GDP (in ETB millions) 8,722,308
End-of-period exchange rate (ETB per US$) 55
Multilateral and Collateralized debt
Multilateral Creditors 15,269
Percent of external debt 53
Percent of GDP 9.6
IMF and WB 12,298
Percent of external debt 43
Percent of GDP 7.7
AfDB/AfDF 2,198
Percent of external debt 8
Percent of GDP 1.4
Others 773
Percent of external debt 2.7
Percent of GDP 0.5
Collateralized debt 0
Percent of external debt 0
Percent of GDP 0
Sources: Ethiopian authorities; and IMF staff estimates and projections.
1/ Includes pre-HIPC arrears waiting to receive HIPC comparable treatment.
2/ Includes loans backed by China export credit agency.

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Annex I. Risk Assessment Matrix1

Relative
Source of Risk Impact if Realized Policy Response
Likelihood
Domestic Risks

Further intensification of M M. Economic disruption, Ensure clear communication,

conflict in Amhara and increased humanitarian facilitate humanitarian aid,
Oromia regions or needs, and increase in and accelerate peace talks.
escalation of tension prices of staples as Ethiopian National Dialogue
between Amhara and Amhara and Oromia Commission already
Tigray. encompass the country’s established.
main crop producing
areas.
Adverse weather events, M/L M. Further increase in Scaling up humanitarian
including worsening of food insecurity. assistance to affected areas
drought or flooding in in coordination with
different parts of the international relief agencies.
country.
Fallout from dispute with L M. Regional instability, Resolving differences
Somalia over status of resurgence of Al-Shabab through peaceful
Somaliland and Ethiopia’s terrorism. negotiation.
quest for sea access.

Domestic resistance delays L M. Economic distortions Forceful communication of

implementation of planned continue, difficulties reform benefits
economic reforms. accessing imported goods complemented by protection
intensify, growth and of vulnerable groups.
investment weaken.

External Risks 1/

Intensifying spillovers from H M. Lower demand for Accelerate reforms

regional conflicts. Escalation Ethiopia's main exports, enhancing export
or spread of regional trade flow disruptions, and competitiveness. Adopt a
conflict(s) or terrorism weaker debt sustainability. market-clearing exchange
disrupt trade, remittances, Financing from a major rate policy. Accelerate the
tourism, FDI and financial bilateral partner adversely WTO accession process and
flows, payment systems, affected. implementation of trade
and increase refugee flows. agreements such as AfCFTA.

1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most
likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks
surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability
between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on
the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually
exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the
risk could materialize within 1 year and 3 years, respectively.

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 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

External Risks (continued)1/

Relative
Source of Risk Impact if Realized Policy Response
Likelihood

Commodity price volatility. H M/H. Higher import prices Tighten monetary policy if
Supply and demand for import commodity, second-round inflation
fluctuations cause recurrent including food, fuel, and effects are significant.
commodity price volatility, fertilizers. Wider trade and Increase social spending.
external and fiscal pressures fiscal deficits. Negative
and food insecurity, cross- impact on agriculture due
border spillovers, and social to lower fertilizer imports.
and economic instability.
Deepening geoeconomic H L/M. Lower demand for Accelerate reforms
fragmentation. Broader exports, weaker trade enhancing export
conflicts, inward-oriented deficit and debt competitiveness. Adopt and
policies, and weakened sustainability. Reduction in maintain a more flexible
international cooperation remittances from diaspora, exchange rate policy.
result in less efficient FDI, creditor cooperation,
configuration of trade and and financial support from
FDI, supply disruptions, international community.
protectionism, policy
uncertainty, technological
and payments systems
fragmentation, rising
shipping and input costs,
financial instability, a
fracturing of international
monetary systems, and
lower growth.

1/
Based on the July 26, 2024, update of the Global Risk Assessment Matrix.

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Annex II. Letter of Intent

Addis Ababa, October 7, 2024

Madame Kristalina Georgieva

Managing Director
International Monetary Fund
Washington, DC 20431
USA

Dear Madame Managing Director:

Our economic reform program supported by the four-year Extended Credit Facility (ECF) approved
by the IMF Board on July 29, 2024, is advancing well. The historic steps taken over the past few
months to establish a modern interest-rate based monetary policy framework and a market-
determined exchange rate have gone smoothly. The exchange rate in the formal market has
adjusted to largely eliminate the gap with the parallel market, with little disruption to the broader
economy. The acute shortages of foreign exchange that previously existed have started to ease.
Businesses and consumers are finding it easier to source the goods they need, helping the economy
expand.

Following the success of the recent reforms, we are pushing ahead with our IMF-supported program
to address macroeconomic imbalances and promote private sector-led growth. The objectives of
our economic program are to (i) address foreign exchange shortages and long-term balance of
payments vulnerabilities; (ii) reduce inflation through prudent monetary policies and sound public
finances; (iii) address debt vulnerabilities and strengthen domestic revenue to enable government
investment and other priority spending; (iv) strengthen the financial sector, address vulnerabilities in
SOEs, and lift financial repression progressively; and (v) promote a robust, inclusive, and sustainable
economy.

This economic program supports our recently released HGER2.0 (Homegrown Economic Reform
Agenda 2.0), which updates the original HGER and aims to deliver a vibrant private sector that can
accelerate growth and create decent jobs. HGER 2.0 rests on four key pillars: (i) ensuring macro-
economic stability; (ii) creating a conducive investment and trade climate; (iii) increasing productivity
across key sectors; and (iv) building a capable and efficient civil service.

The next steps in our economic program include: (i) executing our fiscal plans for FY2024/25,
including pro-poor spending, in line with the program, per the supplementary budget that will be
presented to parliament in early October; (ii) implementing the National Medium Term Revenue
Strategy that was published late-September; (iii) supporting the development of the FX market,
including through enforcement of the new foreign exchange market directive, prudential regulation
on banks’ net open position, and the gradual phase-out of surrender requirements; (iv) moving
ahead with the transition from quantitative controls on credit to interest rate-based monetary policy,
including making the monetary policy rate positive in real terms (based on six month ahead

40 INTERNATIONAL MONETARY FUND

 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

projected inflation) in the first quarter of 2025; and (v) supporting development of the T-bill market
to ensure efficient provision of credit to government.

We request the Fund’s continued financial support for our economic program through a
disbursement of SDR 255.60 million for completion of the first review of the ECF arrangement. As
part of this first program review, we also request (i) a modification of the end-December 2024, the
end-March 2025 and the end-June 2025 net international reserves QPCs/IT to lock-in part of the
overperformance of the target observed on August 16, 2024; (ii) a modification in completion date
for the structural benchmark for publication of NBE audits; and (iii) completion of the financing
assurances review.

The policies and actions underpinning the ECF arrangement are set out in the attached
Memorandum of Economic and Financial Policies (MEFP). The implementation of our program will
be monitored through quantitative performance criteria, indicative targets, and structural
benchmarks described in the MEFP and further specified in the attached Technical Memorandum of
Understanding (TMU). We will provide the IMF with all the data and information required to monitor
implementation of the agreed measures and the execution of the program, as detailed in the TMU.

We are confident that the policies and measures outlined in the MEFP will enable us to achieve our
program objectives. We will promptly take any additional measures that may become appropriate
for that purpose, in consultation with the IMF, and in accordance with applicable IMF policies. We
will refrain from any policy that would not be consistent with the program’s objectives and
commitments herein. We are committed to working closely with IMF staff to ensure that the
program is successful, and we will provide the IMF with the information necessary for monitoring
our progress.

In line with our commitment to transparency, we consent to the publication of this letter and its
attachments, and the related staff report.

Very truly yours,

/s/ /s/
H. E. Mr. Ahmed Shide H. E. Mr. Mamo E. Mihretu
Minister of Finance Governor, National Bank of Ethiopia
The Federal Democratic Republic of Ethiopia The Federal Democratic Republic of Ethiopia

Attachments:
I. Memorandum of Economic and Financial Policies
II. Technical Memorandum of Understanding

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Attachment I. Memorandum of Economic and Financial Policies

Addis Ababa, October 7, 2024

A. Context and Recent Developments

1. After two decades of rapid economic and social development, Ethiopia’s economy,
while facing challenges, remains resilient. Per capita income rose 650 percent during 2000–20,
supporting gains in human development, health, and education indicators. Although a key driver of
growth was public investment in large infrastructure projects, this contributed to macroeconomic
imbalances that threatened to undermine progress. In 2019, the government embarked on the
Homegrown Economic Reform Agenda (HGER) to address imbalances and encourage private sector-
led development. A series of economic shocks, including the COVID 19 pandemic, drought,
domestic conflict, and international commodity price rises, delayed reforms and led to a moderation
in growth, worsening economic imbalances, significant internal displacement, and food insecurity.
Financing reconstruction and recovery from conflict and managing the long-term effects of climate
change add to the challenges that must be addressed.

2. Core elements of the economic reform plans were successfully implemented prior to
the ECF program despite very challenging circumstances. The fiscal deficit was significantly
reduced over FY2021/22-23/24, difficult subsidy reforms were implemented helping minimize fiscal
risks, and borrowing by state-owned enterprises (SOEs) was tightly controlled (including by
avoidance of non-concessional debt). A new holding company, Ethiopian Investment Holdings, was
established to achieve improved performance in public enterprises through use of modern
management practices, corporate governance standards, and partnerships with foreign investors.
The telecom and logistics sectors (both previously dominated by a government monopoly) were
opened to competition. The decision to open the banking sector to foreign participation was
another decisive reform measure taken to help address long-standing weaknesses in the scope,
depth, and accessibility of modern financial services.

3. To sustain progress, we are reinvigorating our reform agenda. The recently released
HGER2.0 (2023/24-25/26) renews the government’s commitment to maximizing the potential and
building the resilience of our economy. HGER2.0 is built on four pillars: (i) macroeconomic reforms,
to establish a modern and sound macroeconomic policy framework that supports stability,
resilience, and sustainability; (ii) investment and trade sector reforms, to boost competitiveness
through a favorable environment that promotes and enhances innovation and entrepreneurship;
(iii) productive sector reforms, to expand capacity and raise productivity growth by increasing
investment; and (iv) public sector reforms, to enhance the government's capacity to ensure the
efficient delivery of high-quality services.

4. Our reform drive is now making substantial advances. In July 2024, we introduced a
modern interest rate-based monetary policy framework, floated the exchange rate, embarked on a
four-year ECF arrangement with the IMF, advanced discussions with creditors on restructuring of our

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external debt, and secured budget support from the World Bank in support of our development
objectives. More sectors, including residential housing, retail and wholesale trade, and banking are
now being opened to foreign investment. We have also made progress in strengthening the
institutional and regulatory framework, with new central bank, banking, investment, trade,
procurement, and public enterprise laws already enacted or close to finalization. A securities
exchange is about to be launched.

5. Real GDP growth has remained resilient but has moderated in recent years. Growth
rose from 6.4 in 2021/22 to 7.2 percent in 2022/23, above sub-Saharan African averages, but down
from average growth of 9 percent prior to 2019. The Cessation of Hostilities Agreement in
November 2022, strong performance in transport services and hotels following the pandemic, and
strong agricultural production due to favorable rains and initiatives to increase irrigated crop
production have supported the recovery. Growth in industry has suffered from supply bottlenecks
(particularly in construction) and foreign exchange shortages.

6. Inflation has fallen but remains high. Inflation peaked at 37 percent in May 2022, but has
since declined to 17 percent as of August 2024, supported by decisive measures by the NBE to
reduce inflation since 2023, including limiting monetary financing of fiscal deficits and growth in
credit to the private sector.

7. Balance of payments (BOP) pressures continue to be challenging. Over recent years,

domestic conflict, application for debt treatment under the G20 Common Framework (CF), and
external shocks such as the war in Ukraine, led to a significant decline in external financing. The
trade deficit remains widened, with a low and narrow export base, and the structural demand for
imports is high. Remittance flows are showing a strong recovery. International reserves stand at
1.7 months of coverage as at end of August 2024.

8. Government spending has been cut to reduce deficit financing needs, with declining
revenues and little external support. The general government deficit fell to 2.0 percent of GDP in
2023/24, down from 2.6 percent of GDP in 2022/23 and a peak of 4.2 percent in 2021/22, as peace
brought a decline in defense spending and capital spending was constrained. Grants stood at
0.4 percent of GDP in 2023/24, down from an average of 1 percent of GDP during the pre-conflict
years. General government tax revenues continued their long-term decline, falling to 6.3 percent of
GDP in 2023/24, a critically low level that jeopardizes public service delivery, poverty reduction, and
capacity to finance large public investment and post-conflict reconstruction needs.

9. Reforms of SOEs are underway. Infrastructure investment and quasi-fiscal activities of

some large SOEs have been curtailed, and longer-term reform programs to restore operational
viability are underway. A key macro-financial vulnerability stems from past lending to these SOEs by
the systemic state-owned Commercial Bank of Ethiopia (CBE). Operating losses and failure to service
debt resulted in CBE evergreening these loans, as sovereign guarantees were not made effective.
The equivalent of about 6.2 percent of GDP in such legacy loans, including overdue interest, had
been taken over by the federally owned Liability and Asset Management Corporation (LAMC) by
2022/23. After LAMC made repayments on these debts with resources from the sale of telecom and

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mobile money licenses, SOE reform and privatization plans were affected by the domestic conflict,
and no additional repayments were made, incurring substantial new arrears to CBE. In early 2024/25,
CBE’s claims on LAMC and EEP were replaced with a government bond. In addition a further amount
was provided to ensure CBE is fully capitalized beyond the 8 percent regulatory requirement (see
Section H). The total amount of bonds provided was Birr 900 billion (7.7 percent of GDP) of which
Birr 55 billion was for the capital increase.

10. The NBE has maintained a tight monetary policy. To reduce inflation, monetary financing
was reduced to 0.8 percent of GDP in 2023/24 and eliminated entirely from the start of 2024/25,
with the introduction of the new short-term Cash Flow Facility. A 14 percent cap on annual growth
in commercial bank credit to the private sector was introduced in August 2023 and remains in place.
The introduction of a new monetary policy framework and the operationalization of OMOs has
further supported our tight monetary policy stance. Since July, the NBE has conducted regular open
market operations (OMOs) at the policy rate of 15 percent, and banks have utilized the new
overnight standing facility to meet liquidity needs. While market-determined term deposit rates
have shown a modest increase over the past year, interest rates remain well below inflation.

11. Debt levels have continued to fall. The government has not contracted new external non-
concessional loans since 2018, while SOEs have not started new externally financed investments,
continuing only a few ongoing projects. The stock of external debt declined from 29.0 percent of
GDP in 2020/21 to around 16 percent of GDP in 2023/24. With domestic debt falling too, total
public and publicly guaranteed debt declined from 56.1 percent of GDP in 2020/21 to around 35
percent in 2023/24.

B. Objectives of the Program

12. Our economic reform agenda provides a foundation for strong, inclusive, and private
sector-led growth. We envision a return to high and stable growth and single digit inflation within
the program period. Correcting exchange rate distortions, unlocking external financing, controlling
inflation, boosting tax revenues, optimizing public investment, ensuring debt sustainability,
strengthening banking sector resilience, and improving the business environment will anchor
macroeconomic stability and stimulate economic growth.

13. Our economic program supported by the IMF and outlined in this memorandum is
built on the HGER. Key objectives under the program are to (i) address foreign exchange (FX)
shortages and long-term balance of payments (BOP) vulnerabilities stemming from exchange rate
distortions among other factors; (ii) reduce inflation through modernizing the monetary policy
framework and sound public finances; (iii) address debt vulnerabilities and strengthen domestic
revenue to enable government investment and other priority spending; (iv) strengthen the financial
sector, address vulnerabilities in SOEs, and lift financial repression progressively; and (v) promote a
robust, inclusive, and sustainable economy, through improving governance, financial inclusion,
public service delivery and bolstering climate resilience and food security. Strengthening institutions

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and macroeconomic policy frameworks is critical to achieve these goals, which together will create
the right conditions for private investors to unlock the economic potential of our country.

C. Foreign Exchange Policy

14. We have adopted a flexible exchange rate regime, eliminated distortive current
account controls, and switched surrender requirements from the NBE to commercial banks.
The exchange rate was floated on July 29, 2024. This entailed a comprehensive overhaul of FX
regulations and accompanying preparations, such as a real-time FX reporting system. Supporting
policy actions followed, including lifting of the ban on the import of 38 items; the relaxation of
restrictions on the Franco Valuta import scheme; accepting applications for independent foreign
exchange bureaus; the introduction of a directive to instruct banks to reflect all FX transaction fees
in their posted bid-offer rates; the elimination of the practice of offering a fixed premium above the
official exchange rate to locally mined gold sold to NBE and allowing large-scale gold producers to
retain half of the FX generated from gold exports for up to three months, a two-month extension
from the previous limit.

15. The switch to a flexible exchange rate regime has proceeded well. The exchange rate
has converged to levels close to the pre-reform parallel market rate, with tight monetary conditions
contributing to stability. The sharp depreciation substantially corrected real exchange rate
overvaluation. The parallel market spread to the indicative rate (calculated as the weighted average
exchange rate of banks’ FX transactions) collapsed. While the FX supply response has been positive
and liquidity conditions in the market are gradually improving although bid-offer spreads remain
high and the interbank FX market remains inactive. The banking sector’s FX short position remains
large, mainly reflecting a large stock of letters of credit (LCs) for fuel imports. NBE conducted a
special FX sale auction on August 7th, 2024 to banks to aid in price discovery. Since the IMF program
approval and up to end of September, the NBE allocated US$ 491 million to the CBE for settling
letters of credit (LCs) related to fuel imports.

16. Transitional arrangements to address the legacy of LC related to pre-exchange rate

reform fuel imports are in place. To resolve the exchange market “overhang” of the large fuel-
related liabilities that NBE would have formerly settled and to ensure the smooth importation of fuel
in FY2024/25 and FY2025/26, we have adopted the following arrangements:
• In line with the market determination of the exchange rate, CBE and private banks will
remain primarily responsible for settling all LCs. On an exceptional basis, NBE will provide
an amount additional to the original budget of US$670 million for settling fuel-related LCs.
To the extent that market participants cannot source the requisite foreign exchange, NBE will
provide forex funds to settle legacy fuel payments by allocating higher-than-expected gold
receipts (relative to the baseline forecast of US$400 million in FY2024/25) to a maximum
amount of US$600 million. NBE’s intervention would be made either via auction and/or
directly to CBE at the prevailing market rate.

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• CBE and commercial banks will be exclusively responsible for settling new LCs issued
after the exchange rate reform, including those that mature in FY2024/25 and
FY2025/26. We expect CBE and commercial banks will split the financing obligation broadly
in line with their FX market shares. NBE will not provide further FX support. All transactions
between and EPSE and banks will be conducted at freely negotiated rates. If EPSE can get a
better price from a bank that has already filled its contribution, it will be allowed to do so
without prejudice to the overall agreement. After FY2025/26, there will be no special
arrangement.

17. We continue to take measures to ensure a sustained switch to a flexible exchange

regime with liberalized current account transactions. These measures will support the supply
response to the FX reform, improve intermediation and market functioning in the FX market:
• The requirement for exporters to surrender non-surrendered FX after one-month will be
removed by end-October 2024. This will help exporters to better manage the import of
necessary inputs and FX risks. We will completely phase out surrender requirements by the
end of the program, at a pace determined by the development of FX market liquidity.
• Monitoring of the FX market and enforcement of the new FX directive will be enhanced. NBE
will implement an internal monitoring manual, strengthen both off-and on-site inspections
and establish a dedicated task force with special focus on ensuring that authorized banks are
complying with the Foreign Exchange Market Operation Code of Conduct. This will ensure
that all FX transactions are properly reported and reflected in the indicative exchange rate.
We will continue our efforts to improve understanding of the FX directive including posting
FAQs on NBE’s website by end-November 2024.
• An Article VIII assessment was completed. We are currently reviewing the findings and will
monitor the identified pre-IMF program official actions that may yet give rise to MCPs.
Phasing out of the NBE exchange commission will be aligned with due regard to NBE’s
operating balances, given that the commission accounts for a large portion of NBE’s income.
• In September 2024, NBE issued a circular instructing banks not in compliance with the
regulatory NOP threshold to provide plans to ensure full compliance by end-June 2025
(end-September 2024, structural benchmark). Banks are expected to provide plans to NBE by
end-December 2024. With IMF technical assistance we will further strengthen the
measurement of NOPs to better capture banks’ FX risk profiles, revise the NOP prudential
regulation and ensure adequate enforcement and redesign the call report to collect more
granular information.

• We are conducting an FX market survey covering both banks and the real sector to identify
impediments to efficient FX market functioning and deepening. With technical support from
the IMF, we expect to complete the survey by end-2024. Additional policy measures are
expected based on the survey results.

18. Intervention in the foreign exchange market will be limited to stemming disorderly
market conditions. The NBE has approved an FX intervention strategy (including governance

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process) that allows, but does not oblige, the NBE to buy or sell foreign currency in volatile market
conditions. Any FX intervention will be conducted via public auction following NBE’s FX auction
guidelines. Auction results will be published on NBE website immediately after the closing of the
auction.

D. Monetary Policy

19. We are modernizing the monetary policy framework. The NBE’s strategic plan for 2023–
26 prioritizes maintaining low and stable inflation and transitioning to an interest rate-based
monetary policy regime. NBE has prepared a governance framework for monetary policy that will be
implemented alongside enactment of the NBE establishment proclamation. A monetary policy
committee (MPC) is being established and will recommend the policy stance to the Board of the
NBE and approve all instruments and guidelines relating to the implementation of monetary policy;
the MPC will play an advisory role until it assumes its formal role as set out in the amended NBE
establishment proclamation. To prepare the transition to the interest rate-based monetary policy
framework, NBE has also: (i) published operational guidelines, including for implementing open-
market operations and the collateral framework; (ii) enhanced coordination with the Ministry of
Finance (MoF), supplementing weekly with daily liquidity forecasts; and (iii) developed a
comprehensive and transparent communication strategy for all stakeholders.

20. NBE established an interest rate-based monetary policy, beginning open market
operations in July 2024. On July 9, 2024, we announced a target policy rate of 15 percent, the mid-
point between the standing lending and deposit facility rates, set at ± 3 percent around the policy
rate, with the interbank lending rate as an operational target. To achieve this policy stance, the NBE
has conducted regular full allotment Open Market Operations (OMOs) at the policy rate to align
banking sector liquidity with the monetary policy stance. In July 2024, we issued an Interbank Money
Market Directive, which aims to encourage the banking sector to manage its liquidity more
efficiently. This will be supported by the launch of an inter-bank money market trading platform in
November 2024. The money market and our monetary policy measures will also be supported by
the deployment of a central securities depository (CSD) by end-December 2024. We merged banks’
payment and settlement accounts with their reserve accounts in August 2024 and are reviewing the
calculation for reserve requirement maintenance periods to ensure more efficient liquidity
management in the banking sector. Finally, we have implemented an emergency liquidity assistance
framework to provide temporary liquidity to solvent banks facing strains (SB, end-September 2024).

21. We will continue to tighten monetary policy as needed to anchor exchange rate and
inflation expectations with the objective of ensuring price stability. We will discuss the
monetary policy stance, including banking sector liquidity conditions, at an MPC meeting in October
2024, and consider our current usage of various quantitative tools, including the banking sector
credit cap and level of the reserve requirement. We will rely first and foremost on interest rates to
signal the policy stance, and as such will seek to end quantitative restrictions on bank lending.
Further increases to interest rates will be implemented with the objective of achieving a positive real
policy rate in the first quarter of 2025, based on six-month ahead projected inflation, which is

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expected to increase as passthrough from the recent exchange rate depreciation is realized. We will
maintain a close dialogue with the IMF on monetary policy setting, consulting as needed if inflation
deviates from the baseline projection, standing ready to take additional monetary policy measures
to manage inflation expectations as needed.

22. We will take further steps to improve T-bill market functioning and price discovery, so
as to increase domestic resource mobilization and strengthen monetary policy transmission.
Although T-bill rates are allowed to move freely to the market clearing rate and new internal auction
procedures were implemented in July 2024 to promote better market functioning, auctions have
remained undersubscribed with interest rates well below the monetary policy rate. Acknowledging
the need for significantly increased banking sector participation in the T-bill market, we will enhance
communication with market participants to ensure the rules of the T-bill market are well understood,
including the absence of restrictions on bids. We stand ready to consider additional measures such
as advancing the commitment to remove the eligibility of T-bills toward meeting the reserve
requirement for CBE (currently at least 50 percent in December 2024 with fully elimination by end-
2025), should T-bill rates continue to remain well below the monetary policy rate.

23. We have eliminated monetary financing of fiscal deficits, ending a key driver of
inflation. All direct advances are now terminated (quantitative performance criterion, QPC). To
ensure the federal government can manage its cash position as liquidity forecasting improves and
the Treasury bill and bond market develops, a government short-term credit facility has been
created. As per the draft NBE proclamation, this Cash Flow Facility may provide temporary credit to
the government for a duration of no longer than 12 months at the NBE monetary policy rate, for
amounts not exceeding 15 percent of the previous fiscal years’ General Government domestic
revenue. Tighter fiscal policy and limits on SOE borrowing (indicative target, IT) will also support
tighter monetary conditions, with a significant impact on overall credit demand given the large
share of government and public enterprises in total credit.

24. We are strengthening NBE governance and transparency. With technical assistance from
the IMF, we developed comprehensive draft legal amendments to the NBE Proclamation, which have
been submitted to parliament (structural benchmark, end-December 2024). These amendments
present important improvements in many respects (NBE’s mandate, autonomy, decision-making
structure, accountability, external audit, and transparency), and will undergo public hearing with
parliamentary approval expected by March-2025. The tender for the external audit of NBE financial
statements was refloated in early August to allow more time for suitably well-qualified bidders to
comply with tender’s technical and international practice requirements. With auditor selection close
to being finalized, NBE is on track to publish financial statements for 2021/22 and 2022/23 (modified
structural benchmark, end-January 2025). Amendments to the NBE proclamation will ensure there is
a legal basis for NBE to be audited by a qualified audit firm with the requisite expertise to conduct
IFRS-based audits and experience in auditing central banks.

25. An assessment of NBE’s capital will be undertaken. To ensure that NBE has adequate
capital to attain its policy objectives and operate independently, we have requested IMF technical
assistance to assess the level of capital needed for NBE to effectively fulfill its mandate. This

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assessment could inform the amount and instrument used for recapitalization if needed with the
NBE proclamation providing a legal basis.

E. Fiscal Policy

26. Our fiscal policy will create space for critical public investment in human capital—
health, education, and social protection—and basic infrastructure to support inclusive growth.
A revenue-led strategy will restore long-term stability to the public finances, while ensuring a
significant contribution to restoring debt sustainability. To spearhead collaborative reform
implementation, the Ministry of Finance has established several inter-ministerial working groups
(revenue mobilization, subsidy reform, debt management) that lead policy coordination, monitoring,
and evaluation processes and report bi-monthly to the Macro-Economic Committee.

27. Fiscal consolidation will be maintained over the medium term to underpin sustainable
public finances for long-term development. We will reduce the primary federal government
deficit, on a cash basis, from 1.5 percent of GDP in 2023/24 to 0.7 percent of GDP in 2027/28
(quantitative performance criterion, QPC). The general government deficit will decline in line with
that of the budgetary federal government, underpinned by continued restraint in borrowing by
regional governments.

28. A Supplementary Budget for FY2024/25, in line with program commitments, will be
adopted in early October. The supplementary budget includes a spending package consistent with
the 1½ percent of GDP of measures agreed within the program to mitigate the inflationary and
socio-economic impact of the FX reform. The overall deficit, excluding budget grants, will
temporarily widen by 0.5 percent of GDP in 2024/25, in line with program targets. To sustain fiscal
policy aligned with program targets, the Council of Ministers will submit draft FY2025/26 budget for
Federal Government to Parliament (Structural Benchmark, end-June 2025).

29. Durably raising domestic revenues is essential to increase space for social and capital
spending (QPC). Over the medium-term, a 4-percentage point rise in the tax-to-GDP ratio to
10.2 percent of GDP by 2027/28, including 0.8 percent of GDP from the foreign exchange impact,
will provide a sustainable resource base for raising pro-poor and capital expenditure by 2 and
1.2 percent of GDP, respectively, and help meet recovery and reconstruction needs. We have
adopted a revised Medium-Term Fiscal Framework for 2024/25-27/28 in line with fiscal strategy for
reaching this goal. We are committed to undertaking additional revenue and expenditure measures
that may become necessary to ensure the attainment of our revenue and primary deficit targets.

30. We have embarked on comprehensive tax reforms. We have formed a National Tax
Reform Taskforce consisting of Ministers and State Ministers from Ministry of Finance, Ministry of
Revenue, Ministry of Planning and Development and Commissioner of Customs Commission headed
by a senior macroeconomic advisor to the Prime Minister and a National Tax Reform Technical
Committee with representatives from the Ministry of Finance, the Ministry of Revenue, and the
Customs Commission to provide leadership and secure comprehensive and synchronized
implementation and monitoring of tax policy and tax administration reform. The National Medium-

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Term Revenue Strategy (NMTRS), developed in consultation with the IMF, has been adopted by
Council of Ministers and published (SB, end-September 2024). The NMTRS will guide tax reforms,
considering economic growth and the distributional impact of the tax system over the course of the
program. Revenue yields will come primarily from tax policy reforms at first, with gains from tax
administration reforms setting in over time.

31. We have taken strong tax policy measures that will generate revenues of 0.8 percent
of GDP in 2024/25, including:
• Rollout of the excise stamp regime is on track. In July, we issued directives on excise stamp
management and increased specific rates by accumulated inflation since 2020 on alcohol
and tobacco. The excise stamp tender evaluation is underway and on track to be completed
by mid-October. The stamp regime is expected to be fully implemented (including a digital
tracing system) by April-2025.
• The new VAT Proclamation was adopted by Parliament and has become fully effective. The
new VAT regime maintains a uniform 15 percent tax rate, expands the scope of the VAT net
(expected revenue yield of 0.5 percent of GDP), limits zero-rating for VAT purposes to only
exported and re-exported items, improves VAT registration efficiency, and clarifies revenue
collection mandates of the Federal and regional governments. Exemptions less targeted to
the poor, which were removed under the July Directive, were carried over under the new
VAT law. With the introduction of VAT on public utilities, MoF has issued a new Directive
establishing the VAT-exempt thresholds for domestic electricity and water consumption by
low-income and vulnerable groups, in line with program commitments.
• A customs directive was issued requiring all customs branches to adjust declaration rates to
the current exchange rate, including for goods registered before the exchange rate
liberalization.
• Implementation of the new Real Estate Property Tax Proclamation is on track to yield
0.1 percent of GDP in FY2024/25, with plans for advance rollout by the largest cities in
FY2024/25 and nationwide implementation (at least 0.3 percent of GDP) by FY2026/27, as
legally mandated.

32. We are committed to strengthening tax and customs administration and improving
compliance. Our efforts will focus on strengthening taxpayer registration, e-filing and digitalized
self-assessment, compliance risk management (particularly in construction, manufacturing, and
retail), and tax audit efficiency, guided by specific actions and timelines as specified in the NMTRS.
The Customs Commission will digitalize the valuation and the tariff classification process to
strengthen tax base control and transparency. To advance swiftly with digitalization of tax revenue
administration, the 2024/25 Federal Budget allocated the full funding requirement to procure the
Integrated Tax Administration System. The 2024 TADAT assessment was concluded in August, earlier
than expected, which will inform tax administration reform priorities. We will publish the finalized
report by end-November. We will continue to work closely with capacity development partners to
specify new policies by June-2025, to: (i) raise revenue through agricultural sector taxation while
ensuring efficiency and fairness by keeping farmers with low incomes below the taxable threshold,

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(ii) revise the income tax proclamation covering personal income tax, corporate income tax, and
double taxation agreements, in line with objectives of NMTRS, and (iii) streamline and reduce tax
revenue losses from the proliferation of tax incentives and tax holidays across a range of economic
sectors. We will consult with the Fund before implementing any voluntary asset repatriation
program. Any such program will aim to ensure full transparency and consistency with international
Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) standards and avoid
erosion in the legitimacy and fairness of the tax system.

33. The FY2024/25 Budget contains a spending package of 1½ percent of GDP that will
help mitigate the adverse social impact of FX reform. Our fiscal response stands on four pillars:
• We have prioritized expanding the existing targeted social safety net (PSNP) as the
most cost-effective, direct, and efficient way of providing support to vulnerable
people. We have raised urban PSNP benefits by 20.7 percent in September and could
consider an additional increase depending on price developments. We have activated a
PSNP shock response facility that will deliver two months of cash benefits to beneficiaries.
We are stepping up efforts to expand PSNP coverage to new beneficiaries. The upcoming
January adjustments to rural PSNP will include raising benefits based on recent price trends.
In addition, we are significantly increase resources for the livelihood enhancement
component of the program. The budgetary allocation for PSNP, effected in the
supplementary budget, increases from about 0.1 to 0.5 percent of GDP per year (indicative
target, IT). The social safety project financing by the World Bank (0.2 percent of GDP) will co-
finance PSNP and help cover the funding gap of the existing PSNP5 over the next
18 months.
• We have implemented temporary direct subsidies on select food items and medicines
to accommodate adequate and timely expansion of PSNP. This has cushioned the
immediate consumer price impact of FX reform, despite the inefficiencies of untargeted
schemes. The Ethiopian Trading Business has imported cooking oil and sugar to manage
price spikes ahead of the Ethiopian New Year for domestic distribution at subsidized prices.
The subsidy budget is capped at 0.2 percent of GDP and fully recognized in the
supplementary budget. The federal government has limited increments to the cost of
pharmaceutical products and medicines at public health centers and dispensaries to
25 percent with a budgetary allocation for pharmaceutical subsidies. These subsidies will be
phased out entirely by June-2025. We will refrain from direct price controls.
• We are providing temporary, time bound, and gradually declining fuel subsidies to
partially address the large impact of FX reform on households. Following the July-2024
5 percent price hike across all products, prices have remained unchanged, as the subsidy
component was some 10 percentage points lower than expected due to favorable
international fuel prices, which offset the fiscal impact from the two months of forgone
pump price adjustment. New subsidies that emerged due to Birr-denominated price setting
will be removed in the near term. Initial steps to implement the transitional fuel price
subsidy have been taken with the creation of a technical team to manage both budget
transfers to EPSE and advise on fuel price adjustment. To smooth the impact of price

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increases on the public, we have adopted the plan to raise fuel prices by 5 percent per
month to close the price gap resulting from FX reform by early 2025. We will continue to
provide targeted fuel subsidies for public transportation that will cushion the impact for
vulnerable households across the country. The supplementary budget caps the fuel subsidy
at 0.5 percent of GDP in FY2024/25, almost half of which will be allocated to rebuild the fuel
price stabilization buffers. To cap public transport subsidy costs at 0.1 percent of GDP and
mitigate leakages, we will continue to rely on the current targeting mechanisms and digital
solutions (rebates through mobile payment and digital wallets) and limit eligibility to city
and regional public bus transportation.
• We will increase fertilizer subsidies to 0.4 percent of GDP. Even though under-
fertilization remains among the most important factors behind relatively low production
yields in wheat and other cereals, addressing suppressed fertilizer demand at the current
price subsidy level would be prohibitively expensive (in terms of fiscal and additional
external financing needs). The EABC has floated international competitive bids for fertilizer
supply in line with program parameters. Increasing the budgeted fertilizer subsidy from the
current level of 0.2 percent of GDP to 0.4 percent of GDP will suffice to retain the existing
subsidy level for farmers. We will reduce fertilizer subsidy costs to 0.3 percent of GDP by
FY2025/26.
• We have announced an increase in salaries for public sector employees, prioritizing
low wage earners that fell significantly below poverty line. The wage increase will
benefit 2.3 million federal and regional civil service workers, regional and federal police, and
defense forces, at a gross cost of 91 billion birr (0.6 percent of GDP), of which about 1/3 will
be offset by higher income tax receipts, in line with the spending envelope under the
program. This increase in salaries will partly restore wage erosion and protect low-wage
workers in the public sector from the rise in the cost of living. The lowest-paid employees,
who were earning salaries well below the poverty line, will receive a 300 percent increase,
while increases for the highest earners will be capped at below 5 percent.

34. We will settle legacy fuel subsidy debt and prevent the reemergence of similar
liabilities. Fuel subsidy reform since December-2021 eliminated about 1 percent of GDP in
extrabudgetary fiscal costs and helped reduce the large stock of subsidy related public debt. Our
plan is to continue increasing fuel pump prices to above cost parity to clear the subsidy debt (at
90 billion Birr as of end-September 2024) and rebuild a surplus at the Fuel Price Stabilization Fund
and to eliminate the fuel price subsidy net of taxes by end-2025. The Council of Ministers will
increase the authorized capital of EPSE to offset losses stemming from FX reform (given trade credit
liabilities) and EPSE will eventually transition to lower cost letters of credit (LCs) for future fuel
purchases. FX revaluation losses were estimated at 130 billion Birr as of end-September 2024.
Starting with the FY2024/25 Supplementary Budget, fuel subsidies have been explicitly recognized
as federal government spending. To ensure its sufficient Birr liquidity, EPSE will bill MoF on a month
ahead basis and MoF will fully settle in cash within a month the amount of the projected fuel
subsidy and EPSE’s additional cash shortfall related to maturing FX liabilities. We plan to seek

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technical assistance from the Fund to devise a strategy for rebuilding and managing fuel price
stabilization buffers and implementing transparent and automatic fuel price adjustment.

35. In the medium-term, we plan to increase pro-poor spending and capital expenditure,
as a share of GDP, to above pre-2019 levels. Higher revenues will underpin sustainable expansion
of public spending, which will also help meet reconstruction needs. Specifically:
• Safety nets: we will continue to enhance the adequacy, coverage, and sustainability of our
expenditure on the Productive Safety Nets Program. The increased budgetary envelope for
the PSNP will help to expand coverage of the food insecure and poorest households,
building robust infrastructure for shock response and humanitarian disaster support. We will
work with development partners to strengthen targeting mechanisms, update and improve
poverty assessment metrics, and pursue regular program evaluations with a view to
strengthening effectiveness and credibility of our poverty reduction programs. As the cost-
of-living shock abates, we will concentrate PSNP on durable livelihood improvement to
reduce poverty.
• Public investment: Promoting sustainably financed growth-enhancing investment in public
infrastructure is one of our main priorities. We adopted the Public Investment Proclamation
(2020), and notwithstanding the freeze on the start of new investment projects, took steps to
strengthen the public investment framework, focusing on project-level pre-screening tools.
To tackle the large unfinished public investment portfolio and facilitate medium-term capital
expenditure planning, we plan to formulate an explicit framework for centralized
prioritization, selection, and budgeting of the investment project pipeline, which will be
backed by an IT system, currently under development, to systematize public investment
data. We have undertaken a comprehensive review of the public investment management
institutional landscape (March 2024 IMF Public Investment Management Assessment (PIMA)
mission) and will publish the report. We will use the findings of this assessment, which also
included a climate module, to improve planning, allocation, and implementation stages, as
well as transparency of the public investment management cycle.
• Reconstruction: Our Resilient Recovery and Reconstruction (3RF) planning framework lays
out how we aim to address reconstruction needs following the war in Tigray. Given the large
cost, estimated at close to US$20 billion, and limited budgetary resources, we will leverage
contributions from development partner and the private sector, including via public-private
partnerships, to mobilize resources. So far, donor projects and a multi-donor trust fund have
received contributions of more than US$335 million. Given the large remaining financing
needs, interventions will have to be carefully prioritized and to a large extent rely on private
funding.

36. We will enhance transparency and accountability in the management of public

finances. In FY2024/25, Ministry of Finance will start the publication of a mid-year review on the
implementation of the Federal Government budget and a quarterly budget execution report
(Structural Benchmark, April-2025). The ongoing rollout of the integrated financial management
information system (IFMIS) will also facilitate preparation of the mid-year review report (a 2019

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Public Expenditure and Financial Accountability report recommendation) analyzing economic

development, consolidated budget performance against commitments, cash flow, near-term fiscal
risks, and proposed policy responses. The publication of all these documents will include making
them available on the ministry's website.

37. We will improve transparency and monitoring of fiscal risks from extrabudgetary
units. We will expand of the coverage of extrabudgetary units in government finance statistics, to
comply with GFSM2001/2014, specifically moving the large extrabudgetary government units into
the general government perimeter. Guided by Fund TA we will strengthen Government Finance
Statistics compilation, reconciliation, and reporting practices. In addition, fuel taxes (VAT and excise)
will be recognized as government tax revenues starting in FY2025/26. Ministry of Finance will issue
instruction to Ethiopian Petroleum Supply Enterprise to start remitting all federal fuel taxes to the
Ministry of Revenue by December 2025 (Structural Benchmark, June-2025). The introduction of
public sector obligations (PSO) framework, supported by the World Bank, will be an important step
toward a comprehensive disclosure of quasi-fiscal activities and managing fiscal risks.

F. Public Debt

38. Supported by the financing provided by the IMF-supported program, we will work
toward reaching an agreement in principle with official creditors by the time of the second
review and with bondholders in parallel. Subsequently, memoranda of understanding (MoUs) will
specify: (i) the reduction in debt service during the period determined by the parties to the MoU;
(ii) the extension of the duration of payments and, if necessary; (iii) the reduction in the present
value of payments. These parameters would guide the implementation of relief by other official
bilateral and private creditors through bilateral agreements following comparable treatment. An
active engagement with Eurobond holders continues seeking a restructuring on comparable terms
to the official creditors. We held a global investor call on October 1, 2024, to update Eurobond
holders on the latest macroeconomic developments and the debt restructuring discussion with the
Official Creditor Committee (OCC).

39. We continue our efforts to resolve arrears. The government is making best efforts to
resolve external arrears. The arrears are “deemed away” under the IMF’s policy on arrears to official
bilateral creditors, as the underlying CF agreement is adequately representative the creditors have
consented to proceed with the program in accordance with the IMF’s policy on arrears to official
bilateral creditors. No new external arrears will be accumulated in line with our commitment to a
zero limit on accumulation of external arrears (continuous performance criterion).

40. We will refrain from new non-concessional borrowing. The Government will continue to
ensure that all public and publicly guaranteed (PPG) external financing agreements are on
concessional terms (at least 35 percent of grant element) except for the Koysha dam project and are
taken up at a pace consistent with the external borrowing plan (see Technical Memorandum of
Understanding—TMU). This will be underpinned by a zero limit on contracting and guaranteeing
PPG non-concessional borrowing (continuous performance criterion) and an indicative target on the

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PV of contracting and guaranteeing new PPG external borrowing (see TMU). Details of all new
contracted loans will be communicated to the IMF.

41. We are in talks with prospective lenders concerning the loan terms for the Koysha dam
project. Efforts continue to mobilize concessional borrowing. The project is critical for our medium-
term growth and poverty-reduction strategy and is already some 66 percent completed. Securing
external financing and resuming construction are crucial to avoid incurring contractual penalties due
to delays, potential termination, and overall construction cost increases. The project is expected to
generate 1,800 MW of power upon completion, equivalent to 40 percent of the current generation
capacity. Per capita electricity consumption is only 5 percent of the global average, and nearly
57 million people, primarily in rural areas, are without this essential service. Koysha is expected to
underpin improved access to electricity, rural electrification, generate export revenues, and
strengthen climate resilience.

42. We are taking measures to manage the legacy of domestic public debt, balancing
fiscal sustainability with the gradual elimination of financial repression. This will support bond
market development, credit allocation to the private sector and ensure that the cost of funding for
the government is market determined, reflecting the opportunity cost of using investable funds. We
are taking the following actions to phase out non-market-based financing of the public sector:
• Eliminating monetary financing of public deficits, and addressing the capital position of NBE
comprehensively, including the stock of government debt.
• We intend to phase out the mandatory purchase of 5-year treasury bonds by financial
institutions by repealing the Treasury Bond Purchase Directive No.MFAD/TRBO/001/2022 by
end-June 2025 (structural benchmark, end-June 2025). In 2024/25, we will require banks to
purchase 55 billion Birr of 5-year T-bonds at 9 percent interest (minimum savings rate plus
2 percent). Thereafter, we intend to develop the market for longer-dated government
securities exclusively through market-based mechanisms.
• We will propose a sustainable funding strategy for the Development Bank of Ethiopia (DBE)
by the third review and the requirement that financial institutions purchase DBE bonds will
be removed before the fifth review of the program. In the interim, the yield on newly issued
DBE bonds will be aligned to the yield of the most recent Treasury bond at time of issuance.
• We implemented a voluntary exchange of the stock of T-bills held by Public Servants Social
Security Agency and the Private Organizations Employees' Social Security Administration as
at the end of June 2024 (266.4 billion birr) for a 13-year Special Bond paying 9 percent
interest with a three year grace period, that (i) better matches duration of the pensions
funds’ assets and liabilities; (ii) protects pensioners through returns expected to keep pace
with medium-term inflation; and (iii) provides substantial debt service relief to the Treasury.
• For all other purposes, we will rely on market-based domestic financing, notably through
developing the T-bill market. We will inform Fund staff before taking any action to roll over
or restructure public sector liabilities at rates below contemporaneous T-bill rates, including
the T-bill exchange noted above.

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43. We are strengthening debt management and transparency. We will develop a medium-
term debt management strategy by the end of FY2024/25, with capacity development support as
needed. We are enhancing the comprehensiveness and transparency of our debt disclosures by
publishing in the public debt bulletin government guaranteed DBE bonds.

G. State-Owned Enterprise Policy

44. We have strengthened oversight and governance of the SOE sector. The creation of two
entities holding the state’s interests in SOEs (the Public Enterprise Holding and Administration
Agency, PEHAA 2018, and Ethiopian Investment Holdings, EIH, 2022 have substantially modernized
and centralized SOE oversight and fiscal risk management:
• PEHAA and EIH have made progress in addressing long delays in submitting audited
accounts by SOEs and improved IFRS compliance. The 2022/23 IFRS-based and audited
financial statements for three critical SOEs, and the 2021/22 accounts for another four 1, have
been published (SB, end-September 2024).
• We are developing a comprehensive digital reporting system. This system will enable
MoF supervision of SOEs’ key performance indicators and monitoring of financial relations
between SOEs and the state, including financial flows (subsidies, lending, and tax
obligations), implicit transfers (public service obligations—PSO, preferential tax regimes),
and loan guarantees and contingent liabilities. The IT budget allocation has been approved
and the project will be operational by June 2025.
• The MoF fiscal oversight function will be strengthened to ensure centralized periodic,
timely, and standardized SOE financial and performance indicator reporting. An
inaugural SOE sector risk report was published in May 2023, covering financial and
operational performance of 21 SOEs in PEHAA’s portfolio for the period 2018/19-2020/21.
To build on this progress, we will establish a dedicated SOE Directorate tasked with central
SOE oversight function and a clear mandate vis-à-vis EIH and PEHAA. The unit will provide
high level data analytics and strategic insight into SOE sector regarding actual, potential, and
contingent fiscal exposure, aggregated performance particularly related to policy delivery
and safeguarding of public assets and financial return (dividend). The new SOE analytical
report covering FY2023/24 will be published by September-2025.

45. We are developing a comprehensive legal framework governing SOEs. The new Public
Enterprise law was approved in January 2024. To assess and recognize uncompensated SOE
activities undertaken in the public interest rather than on a commercial basis, we will implement PSO
costing and disclosure regulations, beginning with pilots in the electricity sector by December 2025,
and assess SOE performance in meeting their public service mandates. These measures will lead to

1 The 2022/23 audited accounts will be published for Ethiopian Electric Power (EEP), Ethiopian Electric Utility (EEU),
and Ethiopia Petroleum Supply Enterprise (EPSE), while Ethiopian Sugar Corporation (ESC), Ethiopian Railway
Corporation (ERC), Ethiopian Engineering Group (EEG), and Ethiopian Construction Works (ECW) will publish
2021/22 audited accounts.

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transparent budgetary disclosure of and compensation for non-commercial services. EIH and
PEHAA, in their role as commercially oriented shareholders on behalf of the state, will continue to
perform a key function in pressing for cost efficiency, good governance, and transparency for the
sector. EIH has finalized a dividend policy with respect to its subsidiaries, prescribing transparent
and sustainable profit retention and distribution that also considers the SOEs’ investment plans and
treasury financing and debt servicing needs. To ringfence public finances from SOE operations in
line with Public Debt and Guarantee Issuance Directive (No 46/2017), we will refrain from further
expansion of state guarantees.

46. We are taking measures to restore the viability of the three largest loss-making SOEs
(EEP, ERC, ESC). The transfer to LAMC of the debts of the most indebted nonfinancial SOEs
contributed to restoring their financial health. Further actions are required to improve their
operational viability.
• In the electricity sector: The government has adopted, and the power utility company has
implemented a 4-year electricity tariff adjustment plan, with quarterly price adjustment that
commenced in mid-September (structural benchmark, end-September 2024). New tariffs
provide for strong upfront improvement to the financial viability of power utilities, by
delivering an over 50 percent increase in domestic sale revenue this fiscal year. Average
tariffs will increase by 80 percent over the next 12 months, helping offset lack of the
required adjustment over the previous three years. Poor and vulnerable households will
continue to be protected through maintaining low tariffs for very low consumption brackets
and the VAT exemption introduced with the new VAT regime. The adequacy of the tariff plan
will be reviewed on an annual basis given prospective changes to the sector’s cost structure
arising from exchange rate, inflation, and other economic developments. A revised schedule
of electricity tariff changes will be adopted by end-June 2025 to ensure full recovery of the
sector's operational and debt service costs by 2028.
• In the railway sector: Building on efforts to strengthen standards and timeliness of SOE
financial reporting, we are developing a strategy to address financial vulnerabilities and fiscal
risk emanating from the Ethiopian Railway Corporation. Proposed reform areas include
streamlining the fragmented infrastructure management and operations, including allowing
the private sector to participate both in management and operations of the railway sector.
To benefit from improved external competitiveness and strengthen its revenue potential, the
Ethio-Djibouti Railways has recently launched new cargo container transport service. We aim
to secure financial sustainability and continuity in the provision of public funding through
targeting diversified funding sources, ensuring long-term commitments from the
government, and developing sustainable cost recovery strategies. Further, by creating a
robust institutional framework, we aim to attract private investors, leverage their expertise,
and accelerate the development of a modern, efficient, and integrated railway network.
Complementary measures include finalization of the legal framework for the liberalization of
key logistics sub-sectors (dry port, freight, and logistics services) by end-December 2026
• In the sugar sector: We have relaunched the privatization process for nine sugar estates to
attract private sector investment to exploit Ethiopia’s sugar industry potential and help

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recoup the large public investments in the sector. Direct negotiations on eight sugar
companies are underway, with view to transfer of assets to successful private investors by
end-December 2025. Finalizing the bid process, transferring ownership to successful
investors by end-December 2025 will be a major milestone in propelling the Ethiopian sugar
industry to become a leading regional exporter and a significant contributor to economic
growth.

H. Financial Sector Policy

47. Building on the restructuring and recapitalization in July 2024, we will implement
reforms to ensure that CBE can function as a commercially oriented and viable financial
institution with clearly specified public obligations in a competitive financial sector. The World
Bank’s Financial Sector Strengthening Project is supporting the restructuring and recapitalization of
CBE. With its support, we will:
• Reorient the operating model of CBE by setting a commercial mandate for CBE issued by EIH
that sets long-term commercial expectations for the operation of CBE, and update CBE’s
strategic plan based on this mandate.
• Reform the governance framework of CBE by: (i) ensuring arm’s length dealings with the
public sector on commercial terms; (ii) appointing directors independent of the government
for at least one third of positions on the board of directors; (iii) ensuring a robust risk
governance framework; and (iv) enforcing through the NBE as independent supervisor, strict
adherence to prudential regulations and directives.
• Review CBE’s public policy obligations in the context of SOE policy. Maintaining tight
financial controls and a cautious lending model will be important as the risk management
framework is being strengthened.
• MoF and CBE will revise the memorandum of understanding on guaranteed lending to
ensure that restructuring of guaranteed debts follows the regulations on debt restructuring
by the second review.

48. The NBE has revised the asset classification and provisioning directive in June 2024 in
accordance with international practices to ensure the prompt identification and provisioning of
NPLs, including with public entities, and appropriate recognition of non-performing guarantees. We
are also upgrading our capital framework (Basel II/III) with the support of Fund TA.

49. The entry of new banks and the development of capital markets will help to improve
access to finance and the allocation of credit. Thirteen new banks have entered the market since
September 2021, increasing competition. We will enhance banking regulation and supervision to
strengthen: (i) measurement of FX exposures, interest rate, and funding risks and (ii) stress testing.
We will review and update the regulatory framework for licensing, and for mobile money
institutions.

50. We are developing the capital markets. Formalizing existing over-the-counter markets in

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equities and debt securities will provide alternative sources of funding for firms, enhance risk sharing
and support innovation––but this is likely a longer-term endeavor. The market will facilitate, and in
turn be supported by the development of our pension and insurance industries. The Capital Market
Proclamation (No 1248/2021), issued in 2021, provides the legal framework for regulating capital
markets, including by establishing the Ethiopian Capital Market Authority (ECMA), and creating the
Ethiopian Securities Exchange (ESX). ECMA is the regulatory body responsible for granting exchange
licenses, setting the minimum admission criteria, and providing conditions for listing on the
exchange. ESX is expected to become operational by November 2024, providing the first formal
exchange for secondary market debt securities and equities.
• We are committed to developing the asset management industry, including by ongoing
regulatory work on an industry directive supported by the Capital Market Proclamation that,
among others, will establish a solid framework for the development of collective investment
schemes (CIS). The CIS products will further expand financial inclusion and resource
mobilization with funds invested in government and corporate fixed income instruments.
• Capital market development will be supported by clear and predictable taxation of tax The
ECMA has effectively engaged the MoF in promoting favorable taxation policies as well as
clarity and predictability of taxation treatment for capital market products. This includes the
adoption, in principle, of the concept of taxation “neutrality” in relation to capital market
products relative to alternative funding mechanisms, including bank lending and to direct
investment.

I. Promoting Sustainable, Inclusive Growth

51. Tangible progress in reforming the business environment has been made under HGER,
but gaps remain. The Commercial Code, enacted in 1960, was revised in 2021, including with
respect to insolvency procedures and protection of the rights of minority shareholders. Sixty
previously closed sectors and sub-sectors (e.g., logistics and telecom) have been opened to both
domestic and foreign investment. Legal frameworks for contract farming have been put in place to
provide alternative sources of finance and market access for farmers. Liberalization of the telecom
sector has enhanced competition and paved the way for digital transformation. On mining, the
“National Artisanal and Small-Scale Mining Strategy” was implemented to encourage formalization
of the sector. Finally, a national ID is being rolled out which will provide the basis for increasing
financial inclusion and public service delivery.

52. Structural reforms under HGER2.0 focus on creating a conducive trade and investment
climate and increasing productivity across key sectors, which will contribute to poverty
reduction and improving living standards. Retail and wholesale market structure will be
modernized, including through sequenced liberalization. We are pursuing accession to global and
regional trade agreements—including the World Trade Organization—to improve access to markets
and support exports. Efforts will be stepped up to simplify and fully digitalize trade registration,
licensing, certification, and customs polices. Rural land administration and use rights will be
reformed to unlock economic value through investment. Financing strategies for agriculture will be

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implemented to allow for lease financing, movable collateral, and contract farming. Privatization of
SOEs will continue, including partial privatization of Ethio-telecom, issuance of a second telecom
license and the sale of eight sugar factories. The roll-out of the National Digital ID system will be
completed. Strategic e-government initiatives will be launched to bring efficiency and effectiveness
to public service delivery.

53. We are adopting policies to bolster climate resilience and food security. Ethiopia faces
significant challenges from climate change. The Climate Resilient Green Economy Strategy defines
adaptation and mitigation policies, building a green economy and meeting commitments made in
our nationally determined contributions for greenhouse gas emissions under the Paris Agreement.
Our essential infrastructure projects also consider adaptation to climate change, including on
sustainable green energy generation and distribution, irrigation systems, and water reservoirs to
ensure water security—a key consideration for food security. To further improve climate-aware
planning and coordination between entities, we conducted a Climate Public Investment
Management Assessment (C-PIMA) in March 2024, and completed a Country Climate and
Development Report with the World Bank in February 2024. The recommendations of these reports
will inform our policy agenda, including for potential borrowing operations with international
financial institutions.

J. Economic Statistics

54. Improving the quality of economic statistics is a key priority under HGER2.0. In
December 2023, the government adopted the Ethiopian Statistical Development Program (ESDP) to
strengthening capacity to collect and process data and improve the economic data available to the
public. We are revising the legal framework for statistics with a view to submitting it to the Council
of Ministers by end-June 2025. We are preparing a rebasing of the national accounts to base year
2025/26 by December 2026. We will also conduct a diagnostic of national account statistics using
the IMF Data Quality Assessment Framework by June 2026, with the support of Fund technical
assistance. We will produce and publish annual and quarterly GDP by production and by
expenditure after the rebasing. Other priority areas include aligning data presentation with BPM6 for
external sector statistics, price indices and government finance statistics.

K. Risks and Contingencies

55. The authorities stand ready to adjust policies if risks materialize. Downside risks to the
program in the near-term include disruption from domestic conflict if this was to intensify; rising
import costs due to new international commodity price increases; and potentially social unrest
associated with higher inflation. An abrupt slowdown of global growth also presents a risk via its
adverse effects on exports and potentially remittances. Over the medium-term, risks from climate
change are salient. Climate shocks could exert pressure on food security and food prices. If these
risks materialize, we stand ready to adjust our policies, in close consultation with IMF staff, to ensure
the achievement of the program’s objectives.

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L. Program Design, Financing and Monitoring

56. The ultimate responsibility for program monitoring and coordination will rest with the
Ministry of Finance and National Bank of Ethiopia. To ensure coordinated implementation of the
program, the MoF and NBE will consult with the other public institutions involved in meeting
program objectives to track progress on various targets and reforms under the program. Similarly,
the MoF will provide oversight responsibility for ensuring that public spending is compliant with
budget limits.

57. The program will be monitored by the IMF’s Executive Board. Progress in implementation
of the policies under this program will be evaluated through another quarterly review in 2024 (end-
September test date), then moving to semi-annual reviews of the quantitative performance criteria
(end-June and end-December), indicative targets, and structural benchmarks, as presented in Table
1 and Table 3, respectively. Detailed definitions and reporting requirements for all performance
criteria and indicative targets are presented in the Technical Memorandum of Understanding (TMU)
attached to this letter, which also defines the scope and frequency of data to be reported for
program monitoring purposes and presents the projected assumptions that form the basis for some
of the performance assessments. The next review will take place on or after December 10, 2024. To
this end, the government plans to:
• Not introduce or intensify restrictions on payments and transfers for current international
transactions, introduce multiple currency practices, enter into bilateral payment agreements
that are inconsistent with Article VIII of the IMF Articles of Agreement, or introduce or
intensify import restrictions for balance of payments purposes;
• Adopt any new financial or structural measures that may be necessary for the success of its
policies, in consultation with the IMF.

58. We will strengthen internal coordination and monitoring mechanisms to ensure strong
program implementation. The MoF and the NBE will establish a Technical Committee to monitor
and report program performance to the Minister of Finance.

59. The estimated residual financing gap over the 2024/25–2027/28 program period
remains unchanged at US$10.7 billion and is expected to be covered. In addition to US$3.4
billion from the IMF, we expect US$3.75 billion in budget support from the World Bank. The
remaining gap of US$3.5 billion will be filled by financing associated with debt treatment under the
Common Framework.

60. The government believes the policies specified in this MEFP provide a foundation for
sustaining growth, reducing inflation, and alleviating poverty, and we stand ready to take
additional measures if required. The government will provide IMF staff with the information
needed to assess progress in implementing our program as specified in the TMU and will consult
with Fund staff on any measures that may be appropriate at the initiative of the government or
whenever the Fund requests a consultation. The government intends to make this letter and the

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TMU available to the public. In this context, it authorizes the IMF to arrange for them to be posted
on the IMF website, subsequent to Executive Board approval.

61. Accordingly, the government is requesting Board approval of the policies set forth in
the MEFP, and disbursement of the second loan installment, totaling SDR 256 million, out of a
total four-year arrangement of SDR 2,556 million.

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Table 1. The Federal Democratic Republic of Ethiopia: Quantitative Performance Criteria and
Indicative Targets, June 2024 – September 2025
(In millions of Ethiopian birr, unless otherwise indicated)

end-Sep
end-Jun 2024 Aug. 16, 2024 end-Sep 2024 end-Dec 2024 end-Mar 2025 end-Jun 2025 2025
(proposed)

Program Program Program Program Prog. Prog. Program Indicative

Preliminary. Initial level Actual Status Proposed Prog. Request Proposed Proposed Proposed Proposed
target target target target Request Request target target

Quantitative performance criteria

Net financing of the general government primary balance (ceiling, cumulative change since previous June, 150,000 N/A N/A N/A 42,000 43,000 42,000 69,000 70,000 69,000 95,000 97,000 95,000 106,000 109,000 106,000 76,000
includes grants and excludes interest payments) 1/, 2/
Net international reserves (floor, cumulative change since previous June, US$ millions) (end-Jun 2024 is for initial
793 630 1328 Met 500 600 500 400 500 500 300 500 400 100 400 400 400
level)
Tax revenue collected by the federal government (floor, cumulative sum of tax revenues collected since the 384,000 N/A N/A N/A 86,000 85,000 86,000 192,000 189,000 192,000 347,000 341,000 347,000 578,000 569,000 578,000 120,000
beginning of the current fiscal year)

Net NBE claims on the general government (ceiling, cumulative change since previous June) (end-June 2024 for 632,253 0 -10895 Met 0 0 0 0 0 0 0 0 0 0 0 0 0
initial level)
Continuous performance criteria
Contracting or guaranteeing of external non-concessional debt by the general government, the NBE and public 0 0 Met 0 0 0 0 0 0 0 0 0 0 0 0 0
enterprises (ceiling, US$ millions) 3/
Accumulation of external payment arrears by the general government, the NBE and public enterprises (ceiling, 0 0 Met 0 0 0 0 0 0 0 0 0 0 0 0 0
US$ millions)
Indicative targets
Gross claims on public enterprises by commercial banks (ceiling, cumulative change since previous June) (end-Jun 747,485 N/A N/A N/A 37,000 (148,000) 37,000 74,000 (296,000) 74,000 110,000 (444,000) 110,000 147,000 (592,000) 147,000 50,000
2/
2024 is for initial level)
Government Contributions to Productive Safety Net Programme cash transfers (floor, cumulative sum of 9,000 N/A N/A N/A 6,500 6,800 6,500 22,100 23,400 22,100 33,200 35,100 33,200 51,400 54,200 51,400 12,000
contributions since the beginning of the current fiscal year) 4/
Present value of external new debt (excluding IMF credit) contracted or guaranteed by the general government, N/A N/A N/A 2,000 2,000 2,000 2,500 2,500 2500 2,750 2,750 2,750 3,000 3,000 3,000 N/A
the NBE and public enterprises (ceiling for the fiscal year ending June, US$ millions)

Memorandum items:
Official external grants disbursed to the government (US$ millions, cumulative since previous June) 791 211 211 211 421 421 421 632 632 632 842 842 842 201
Official external loans disbursed to the government (US$ millions, cumulative since previous June) 627 1,638 1,638 1,638 1,775 1,775 1775 1,913 1,913 1,913 2,050 2,050 2,050 391
Gross privatization proceeds (US$ millions, cumulative since previous June) 0 0 0 0 0 0 0 0 0 0 0 0 0 163

Sources: Ethiopian authorities and IMF staff estimates and projections.

1/ Excluding on-lending from the general government.

2/ Excludes commercial banks' claims related to Addis Ababa Housing credit.
3/ The limit is a continuous target (ceiling) on the contracting of non-concessional debt for the fiscal year by the government including general government, NBE and public enterprises (see TMU). An exception is applied for new non-concessional external debt contracted or guaranteed by the general government for
the Koysha dam project, which is capped at USD 950 million over the duration of the program.

4/ Excludes in-kind benefits and donor contributions. Includes Government of Ethiopia contributions to cash transfers to beneficiaries under the rural Productive Safety Net Programme (PSNP) and Urban Productive Safety Net Programme (UPSNP).

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 Table 2. The Federal Democratic Republic of Ethiopia: Structural Benchmarks
64

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(modified SBs in bold text)
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Measure Rationale Board Approved Proposed Status

Target Date New Target
Date

1. Council of Ministers to adopt and publish a medium-term revenue Strengthen tax revenue End-September Met
strategy (drawing on FAD TA) specifying tax policy and revenue mobilization 2024
administration compliance measures with a clear timeframe.

2. NBE to issue an order to all banks not in compliance with the Support financial sector End-September Met
regulatory threshold on net open position to develop plans to stability 2024
ensure full compliance with the regulation by end-June 2025.

3. Publish IFRS-based and audited financial statements for 2022/23 Strengthen SOE finances End-September Met
for Ethiopian Electric Power (EEP), Ethiopian Electric Utility (EEU), and reduce vulnerability 2024
and Ethiopia Petroleum Supply Enterprise (EPSE); and for 2021/22 to corruption
for Ethiopian Sugar Corporation (ESC), Ethiopian Railway
Corporation (ERC), Ethiopian Engineering Group (EEG), and
Ethiopian Construction Works (ECW).

4. NBE to implement an emergency liquidity assistance framework Strengthen financial crisis End-September Not Met
for financial stability purposes provided at the discretion of NBE to and stability framework 2024
viable (solvent) banks with adequate collateral and a funding plan and support monetary
to recover the liquidity situation of the bank. policy implementation

5. Implement the first quarterly electricity tariff increase under the Strengthen SOE finances End-September Met
multi-year plan as approved by the Council of Ministers in June 2024
2024.

6. The NBE to finalize and publish audited financial statements Update and modernize End-December End-January Reset
for 2021/22–2022/23. governance of the NBE 2024 2025
 Table 2. The Federal Democratic Republic of Ethiopia: Structural Benchmarks (concluded)

Measure Rationale Board Approved Proposed New Status

Target Date Target Date

7. NBE to submit to Parliament comprehensive draft legal Update and modernize End-December
amendments to the NBE Proclamation, to be prepared in governance of the NBE 2024
consultation with IMF staff, with respect to the NBE’s mandate,
decision-making structure (internal check and balances and
collegial implementation of decisions), accountability,
transparency, and autonomy.

8. Ministry of Finance to start publication of a mid-year review on the Strengthen fiscal End-April-2025 Proposed
implementation of the budget as of the middle of the fiscal year transparency
and a quarterly budget execution report for prior quarter, both for
Federal Government.

9. National Bank of Ethiopia to repeal directive Reduce financial End-June 2025 Proposed
(MFAD/TRBO/001/2022) obliging financial institutions to buy repression and
Treasury Bonds effective immediately. promote bond market

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

development

10. Ministry of Finance to issue instruction to Ethiopian Petroleum Strengthen fiscal End-June 2025 Proposed
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Supply Enterprise to start remitting all federal fuel taxes to the transparency and
Ministry of Revenue by December 2025. secure budget revenue

11. Council of Ministers to submit draft FY2025/26 budget for the Ensure fiscal targets End-June 2025 Proposed
Federal Government in line with IMF program’s macro-framework. consistent with
program objectives
65
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Attachment II. Technical Memorandum of Understanding

Addis Ababa, October 7, 2024

1. This Technical Memorandum of Understanding (TMU) describes the performance criteria

(PCs), indicative targets (ITs), and structural assessment criteria established by the Ethiopian
authorities and the staff of the International Monetary Fund (IMF) to monitor the program
supported by the Fund’s Extended Credit Facility (ECF) arrangement, as described in the
Memorandum of Economic and Financial Policies (MEFP) and its attached tables. It also specifies the
content, the periodicity, and deadlines for the transmission of data to Fund staff for program
monitoring purposes.

A. Institutional Definitions

2. Unless otherwise specified, the government is defined in this TMU as the general
government of Ethiopia, the National Bank of Ethiopia (NBE), the Liability and Asset Management
Corporation (LAMC), and the state-owned or public enterprises.

3. The general government is defined for program monitoring purposes as the budgetary
central government plus state governments and woredas, excluding state-owned enterprises and
existing extra-budgetary funds (listed in the next paragraph). The definition of the general
government includes any new funds, or other special budgetary or extra-budgetary entities, at
federal, state, or local level, that may be created during the program period to carry out operations
of a fiscal nature as defined in the IMF's Manual on Government Finance Statistics 2014. The
authorities will inform IMF staff on the creation of any such entities without delay.

4. Unless otherwise specified, state-owned or public enterprises refer to those entities that are
principally engaged in the production of market goods or nonfinancial services and are owned or
controlled, partially or fully, by the general government or units of the general government. For
program monitoring purposes this definition will exclude the following entities: Addis Ababa and
Regional Housing or other credit facilitators, and Ethiopian Airlines. The Liability and Asset
Management Corporation (LAMC) will be treated as an extra-budgetary entity and not a state-
owned enterprise. Existing extra budgetary funds excluded from the general government include the
Fuel Price Stabilization Fund, Public Servants Social Security and Pension Fund, and the Road
Maintenance Fund.

I. PROGRAM EXCHANGE RATES

5. Program exchange rates. Reserve assets and liabilities will be converted into U.S. dollar
terms at exchange rates and the gold price in effect on May 31, 2024, as follows:

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Original Currency Value in US$

(1 unit, unless otherwise specified) (unless otherwise specified)

Special Drawing Right (SDR)/ African Development Bank Unit of Account 1.3257

Euro 1.0823

Japanese yen (per USD) 151.38

Pound sterling 1.2638

Chinese yuan (per USD) 7.2065

Canadian dollar (per USD) 1.3581

Norwegian krone (per USD) 10.7336

Swedish krona (per USD) 10.53543

UAE diram (per USD) 3.6725

South African rand (per USD) 18.9907

Gold (1 troy ounce) 2,164.400

Assets and liabilities denominated in other currencies will be evaluated based on their respective
exchange rates with the U.S. dollar on May 31, 2024, as published in the IMF’s International Financial
Statistics (IFS). For the purpose of evaluating inflows of foreign grants and budget support loans and
other direct financing of the general government, the program exchange rate used will be 1 U.S.
dollar = Birr 57.0504, which is the rate prevailing on May 31, 2024.

II. QUANTITATIVE PERFORMANCE CRITERIA (QPC) AND INDICATIVE TARGETS (IT)

6. Test Dates for evaluating performance against performance criteria (PC) for the first, second
and third reviews under the arrangements are August 16, 2024, September 30, 2024, and December
31, 2024, except for the continuous PCs, which remain effective continuously throughout the term of
the Fund-supported program. Program reviews usually take place in between two test dates. The
continuous PCs remain effective even during delays in reviews.

7. The quantitative performance criteria listed below are those specified in Table 1 of the
MEFP. Definitions and adjusters (to account for factors or changes beyond the control of the
government) for each criterion are specified in the subsequent sections. The quantitative
performance criteria targets monitored and evaluated under the program are defined as ceilings or
floors set on cumulative changes between June 30 immediately prior to the test date in question
and the specified test date itself, unless otherwise indicated. The quantitative performance criteria
are set as follows in paragraphs 8–12.

8. Periodic PCs that are evaluated as of each test date:

• Net financing of the general government primary balance (ceiling, cumulative change),
(Section D).
• Net international reserves of the NBE (floor, cumulative change), (Section E).

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• Net claims on the general government by the NBE (ceiling, cumulative change), (Section F).
• Tax revenue collected by the federal government (floor, cumulative change), (Section G).
To facilitate program monitoring, indicative targets for the periodic PCs described above will be set
for March 31, 2025.

9. Continuous PCs that are evaluated on a continuous basis starting from program approval:
• Contracting of external non-concessional borrowing by the government (as defined in
paragraph 2) and provision of government guarantees on external non-concessional
borrowing (zero ceiling), (Section H).
• Accumulation of external payment arrears by the government (zero ceiling), (Section I).

10. The following continuous conditionality will also apply:

• Non-imposition or intensification of restrictions on the making of payments and transfers for
current international transactions;
• Non-introduction or modification of multiple currency practice;
• Prohibition of entering into bilateral payments agreements that are inconsistent with Article
VIII of the Fund’s Articles of Agreement; and
• Non-imposition or intensification of import restrictions for balance of payments reasons.

11. Periodic indicative targets evaluated as of July 31, 2024, September 30, 2024, December
31, 2024, March 31, 2025, and June 30, 2025 (with certain exceptions described below) are:
• Claims on public enterprises by commercial banks (ceiling, cumulative change), (Section J).
• Government Contributions to Productive Safety Net Programs (floor, cumulative change,
evaluated at the end of Ethiopian calendar month immediately after the test/evaluation
dates listed above), (Section K).
• The present value of new external concessional borrowing contracted or guaranteed by the
government, as defined in paragraph 2 (ceiling for the fiscal year ending June), (Section L).

12. Continuous indicative targets evaluated on a continuous basis during a fiscal year, starting
from program approval are:
• The amount of net foreign exchange sales by the NBE (Section M).

III. QPC ON NET FINANCING OF THE GENERAL GOVERNMENT PRIMARY

BALANCE

Definitions

13. The net financing of the general government cash deficit, including grants and the
operations of sub-national (state and woreda) governments financed from local funds, will be
monitored quarterly. Net financing will be measured below the line and will include:

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• Net external financing of the general government, excluding valuation gains and losses
and changes to on-lending to public enterprises. This will be based on data prepared for the
debt bulletin by the debt management directorate at the Ministry of Finance (MOF),
including relief received from debt operations.
• Change in net domestic credit of the banking system to the general government is
defined as the change in outstanding claims of the banking system on the general
government. The calculation of net domestic credit of the banking system will be based on
monetary survey data compiled by the NBE and will include: (i) net claims on the general
government by the NBE (see below for definition), (ii) loans and advances from commercial
banks to the general government, and (iii) holdings of government securities (including
bonds, notes, and Treasury bills), less (i) local currency deposits of the central and state and
local governments at the NBE and commercial banks, (ii) foreign currency deposits of the
central government at the NBE. The definition will exclude valuation gains and losses from
government deposits denominated in foreign currency. As with net external financing, on-
lending from domestic banks through the general government to public enterprises (if any)
should also be excluded. For program monitoring purposes, any bonds issued by states or
regional housing agencies for housing projects where the debt obligations will be
transferred to the private owners of the housing units shall be excluded. The definition will
exclude holdings of government securities issued to increase capital of Commercial Bank of
Ethiopia and replace claims on LAMC and EEP.
• Change in the net domestic nonbank financing to the general government. These
include (i) privatization receipts transferred from the privatization accounts to the budget,
(ii) the change in the stock of outstanding government securities held by nonbank financial
institutions (including pension funds, insurance companies), net of valuation changes,
(iii) change in net credit from the domestic nonfinancial sector (including extra-budgetary
funds classified outside the general government) to the general government minus (i)
change in government financial assets with nonbank financial institutions, (ii) change in
financial assets (either in the form of additional equity or loans) owned by the government
with public enterprises as the counterparty (as a result of capital injections), and (iii) net flow
from the general government to LAMC.

14. Net financing of the general government primary balance (including grants) is defined
as the net financing of the general government cash deficit minus the consolidated interest bill of
the federal and regional government budgets (general government is defined in paragraph 3 and
the general government cash deficit in paragraph 13 of this memorandum).

15. Total external grants to the federal and regional governments are defined as the sum of
project grants, cash external grants for budgetary support, capital grants reflecting the principal
amounts of external debt cancellation or swaps, and other grants.

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Adjustment Factor

16. The ceiling on the net financing of the general government primary balance (including
grants) will be adjusted relative to the baseline projections:
• Upward by the amount of cumulative shortfall in external grants relative to the baseline
projection up to US$200 million at actual exchange rates.
• Upward by the cumulative excess in external project financing relative to the program
projections evaluated in Birr terms at actual exchange rates. External project financing is
defined as disbursements from bilateral and multilateral creditors to the general
government for specific project expenditure.
• Upward by cumulative excess in the programmed privatization receipts transferred from the
privatization accounts to the budget from privatization to non-resident investors.
• Downward by the full amount of any increase in the stock of budgetary arrears on social
payments such as wages, pensions, social benefits accumulated since the beginning of the
fiscal year.

IV. QPC ON NET INTERNATIONAL RESERVES OF THE NBE

Definitions

17. Net international reserves (NIR) of the NBE, are defined as reserve assets of the NBE
(i.e., the external assets that are readily available to, and controlled by, the NBE, as per the 6th edition
of the IMF Balance of Payments Manual), minus the NBE’s short term foreign exchange liabilities to
residents and nonresidents, and Fund credit outstanding, including any use of it as budget support.
Short-term liabilities refer to those that can be called immediately (e.g., FX demand deposits of
banks, the general government, LAMC, public enterprises or the private sector) or have residual
maturity of less than 1 year, including deposits, commitments to sell foreign exchange arising from
derivatives (such as futures, forwards, swaps, and options) and other arrangements. The
performance criterion will be evaluated as the cumulative change in NIR between June 30
immediately prior to the test date in question and the specified test date itself (see Section O).

Adjustment Factor

18. The floor on cumulative change in NIR will be adjusted:

i. Upward or downward for any deviation in the expected cumulative inflows of official
grants and loans disbursed to the government from official development partners in
foreign currency from the beginning of the fiscal year. The projected inflows of official
grants and loans to the government are set out in the macroeconomic framework
underpinning the program.
ii. Upward or downward for any deviation in the programmed inflows from privatization to
non-resident investors (see definition in Section N).

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19. The total downward adjustment to the floor on cumulative change in NIR target for
FY2024/25 is capped at US$300 million. The total upward adjustment to the floor on cumulative
change in NIR target for FY2024/25 is capped at US$150 million.

V. QPC ON NET CLAIMS ON THE GENERAL GOVERNMENT BY THE NBE

20. Net claims on the general government by the NBE is defined as the stock of claims of the
NBE on the general government, net of general government deposits with the NBE.

VI. QPC ON TAX REVENUES COLLECTED BY THE FEDERAL GOVERNMENT

Definition

21. Tax Revenues Collected by the Federal Government. Total tax revenues collected are
defined as the sum of revenues collected by the Ministry of Revenues from any of the following:
(i) duties, taxes, and other charges on international trade;
(ii) personal income tax of federal government employees (including on employment
income, royalty income, dividends, interest, capital gains);
(iii) profit (including repatriated profits) tax and sales (including value-added tax, and
excises) taxes from enterprises assigned to the federal government (including sole
proprietors subject to the turnover tax);
(iv) taxes on gains from lotteries and gambling;
(v) taxes from air, rail, and marine transport;
(vi) taxes from rent of property assigned to the federal government;
(vii) taxes and fees on licenses and federal services;
(viii) stamp duties;
(ix) personal income tax of staff of enterprises jointly assigned to the federal and
regional governments;
(x) profit tax, royalties, and rent from large scale mining, petroleum, and gas
incorporated enterprises;
(xi) any other excises not covered by the list thus far;
(xii) all revenue assignments under the concurrent taxation powers of the federal and
regional governments – namely, corporate income tax and dividend withholding tax
on companies, profit and sales tax on enterprises jointly assigned to the federal and
regional governments;
(xiii) unclassified tax revenues minus corresponding refunds.

22. To the extent that revenue assignments change after the date of this Memorandum, and
the federal government is entitled to levy and collect any other instruments not covered by the list
above, revenue from such instruments should also be included from that moment. That may include
taxes on private movable and immovable property and land use, as well as agricultural income tax
and personal income tax of private employees. Total tax revenue collection will be defined, for each
test date, as the cumulative sum of tax revenues collected since the beginning of the fiscal year.

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Note that any end of the month targets for this series refer to end of the respective Ethiopian
calendar month, which typically ends on the 7th or 8th of the following Gregorian calendar month.

VII. PC ON CONTRACTING OF EXTERNAL NON-CONCESSIONAL DEBT BY THE

GOVERNMENT AND PROVISION OF GOVERNMENT GUARANTEES ON EXTERNAL
NON-CONCESSIONAL DEBT

Definition

23. For program purposes, the definition of debt is set out in paragraph 8(a) of the
Guidelines on Public Debt Conditionality in Fund Arrangements, attached to IMF Executive Board
Decision No. 16919(20/103) adopted on October 28, 2020. 1
“For the purposes of these guidelines, the term “debt” is understood to mean a current
(i.e., noncontingent) liability created by a contractual arrangement whereby a value is provided in the
form of assets (including currency) or services, and under which the obligor undertakes to make one or
more payments in the form of assets (including currency) or services at a future time, in accordance
with a given schedule; these payments will discharge the obligor from its contracted principal and
interest liabilities. Debt may take several forms, the primary ones being as follows:
i. Loans, that is, advances of money to the borrower by the lender on the basis of an
undertaking that the borrower will repay the funds in the future (including deposits, bonds,
debentures, commercial loans, and buyers’ credits), as well as temporary swaps of assets that
are equivalent to fully collateralized loans, under which the borrower is required to repay the
funds, and often pays interest, by repurchasing the collateral from the buyer in the future
(repurchase agreements and official swap arrangements);
ii. Suppliers’ credits, that is, contracts under which the supplier allows the borrower to defer
payments until sometime after the date when the pertinent goods are delivered, or the
services are provided; and
iii. Leases, that is, agreements governing the provision of property that the lessee has the right
to use for one or more specified period(s), generally shorter than the total expected service
life of the property, while the lessor retains the title to the property. For the purposes of the
guidelines, the debt is the present value (at the inception of the lease) of all lease payments
expected to be made during the period of the agreement, apart from payments related to the
operation, repair, or maintenance of the property.”
According to the above-mentioned definition, debt includes arrears, penalties, and damages
awarded by the courts in the event of a default on a contractual payment obligation that represents
a debt. Failure to make payment on an obligation that is not considered a debt according to this
definition (e.g., payment on delivery) does not give rise to a debt.

1 IMF Policy Paper, Reform of the Policy on Public Debt Limits in IMF-Supported Programs—Proposed Decision and
Proposed New Guidelines, November 2020.

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24. External debt, in the assessment of the relevant criteria, is defined as any borrowing from
nonresidents. The relevant performance criteria are applicable to external debt contracted or
guaranteed by the government, or to any private debt for which the government has provided a
guarantee. Guaranteed debt refers to any explicit legal obligation for the government to repay a
debt in the event of default by the debtor (whether payments are to be made in cash or in kind).
Public sector external debt includes foreign-currency denominated obligations of NBE contracted on
behalf of the national government (excluding newly contracted financing from the IMF and the
General SDR allocation). Deposits made at NBE by foreign partners that have been used to support
the BOP and are categorized as debt, in line with the treatment of similar deposits in the past. For
program purposes, this definition of external debt does not include routine commercial debt related
to import operations and maturing in less than a year.

25. Medium- and long-term external debt refers to external debt originally maturing in one
year or more. Short-term external debt refers to external debt originally maturing in less than one
year.

26. For program purposes, a debt is deemed concessional if it contains a grant element
representing at least 35 percent. The grant element is the difference between the present value (PV)
of the loan and its face value, expressed as a percentage of the loan’s face value. The PV of a loan at
the time of its signing date is calculated by discounting future principal and interest payments,
based on the unified discount rate of 5 percent set forth in Executive Board Decision No. 15248-
(13/97). Concessionality will be assessed based on all aspects of the loan agreement, including
maturity, grace period, repayment schedule, front-end fees, and management fees. The calculation
is performed by the authorities, using the IMF model, 2 and verified by IMF staff based on data
provided by the authorities. For loans with a grant component of zero or less, the PV is set at an
amount equal to the face value. In cases where a combination of financing instruments is involved,
staff will need to assess, with support of necessary documentation provided by the authorities, if
such a combination can be treated as a financing package for the purpose of determining if it is
concessional under the Fund-supported program. To the extent a financing package is found to be
concessional, the combined nominal amounts of the underlying instruments will be counted toward
any debt limits on concessional debt.

27. In the case of debt with a variable interest rate represented by a reference interest rate
plus a fixed margin, the grant element of the debt will be calculated on the basis of a program
reference rate plus a fixed margin (in basis points) specified in the loan agreement. The program
reference rate for variable interest rates will be based on the 10-year average projections made in
the Fall or Spring edition, whichever is the latest, of the Fund’s World Economic Outlook (WEO) until
modified. Based on the April 2024 WEO projections, the program reference rate for these currencies,
until modified, are shown below on a calendar year basis, using their averages over 2023–32. To
convert to Ethiopian fiscal year, a simple average of two successive calendar years will be used
(e.g., for 2022/23, simple average of 2022 and 2023 will be used). Where the variable rate is linked to

2 http://www.imf.org/external/np/spr/2015/conc/index.htm.

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a benchmark interest rate other than the six-month USD Secured Overnight Financing Rate (SOFR), a
spread reflecting the difference between the benchmark rate and the six-month USD SOFR (rounded
to the nearest 50 bps) will be added.

The Federal Democratic Republic of Ethiopia: Assumptions for Variable

Interest Rate Set Limits

10-year average six-month Spread (rate in currency noted

Secured Overnight Financing Rate minus US$, in percent
(SOFR), in percent
U.S. dollars 3.688 0.0
Euro 2.803 -1.0
Pound sterling 4.056 0.5
Other 3.316 -0.5

28. External debt is deemed to have been contracted or guaranteed on the date of signing a
loan contract by authorized signatories of the government (as defined in paragraph 2). Contracting
of credit lines with no predetermined disbursement schedules or with multiple disbursements will be
also considered as contracting of debt. For program purposes, external debt denominated in
currencies other than the U.S. dollar will be converted to U.S. dollars on the basis of the exchange
rate as of the assessment date. Such conversions to U.S. dollars will be undertaken by the
government and communicated to IMF staff.

29. The performance criterion (ceiling) applies to the nominal value of new non-
concessional external debt and the nominal value of new concessional external debt, contracted or
guaranteed by the government. The ceiling applies to debt and commitments contracted or
guaranteed for which value has not yet been received, including private debt for which official
guarantees have been extended. An exception is applied for new non-concessional external debt
contracted or guaranteed by the general government for the Koysha dam project, which is capped
at US$950 million over the duration of the program. Operations that resolve pre-HIPC arrears and
result in reduction in outstanding stock of debt are excluded from the ceiling. Court or arbitral
decisions and related debt operations with respect to government guarantees on existing external
debt in dispute as of end-June 2024, that result in more favorable terms to the guarantor than those
of the initial debt, will be excluded from the ceiling. Debt operations that restructure existing loans
and that result in a reduction of the present value (present value savings) compared with the initial
debt and/or an improvement of the overall public external debt service profile will be excluded from
the ceiling. In the calculation of the present value savings for these debt operations, the discounted
future stream of payments of debt service due on the newly issued debt instrument (including all
costs associated with the operation) will be compared with the discounted future stream of debt
service due on the instrument it replaces using a discount rate of 5 percent and these amounts will
not be capped by the nominal value of the debt.

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VIII. CONTINUOUS PC ON ACCUMULATION OF EXTERNAL PAYMENT ARREARS

BY THE GOVERNMENT

30. External payment arrears are defined as payments (principal and interest) on external debt
contracted or guaranteed by the government that are overdue (considering any contractually
agreed grace periods). For the purposes of the program, the government undertake not to
accumulate any new external payments arrears on their debt. The definition excludes arrears relating
to debt subject to renegotiation (dispute or ongoing renegotiation). The performance criterion on
the public and publicly-guaranteed external debt arrears is defined as a cumulative flow in gross
terms from the date of program approval and applies on a continuous basis.

IX. IT ON CLAIMS ON PUBLIC ENTERPRISES BY COMMERCIAL BANKS

31. Claims on public enterprises by commercial banks are defined as the stock of claims on
public enterprises (as defined in paragraph 4 of this memorandum) by commercial banks. Claims on
public enterprises by commercial banks shall consist of all domestic commercial bank claims on
public enterprises, including loans, bonds, and other liabilities issued by public enterprises.

X. IT ON GOVERNMENT CONTRIBUTIONS TO PRODUCTIVE SAFETY NET

PROGRAMS

32. Government Contributions to Productive Safety Net Programs (PSNP) are defined as
general government cash contributions to the rural and urban Productive Safety Net Programs. The
IT will be measured using total government contributions to disbursements for both programs from
Channel 1 and Channel 2 directorates in the MOF. End-of-month targets for this IT refer to end of
the respective Ethiopian calendar month, which typically ends on the 7th or 8th of the following
Gregorian calendar month.

XI. IT ON PRESENT VALUE OF NEW EXTERNAL DEBT CONTRACTED OR

GUARANTEED BY THE GOVERNMENT

33. An indicative target (ceiling) applies to the PV of new external debt contracted or
guaranteed by the government, as defined in section H. The ceiling applies also to debt
contracted or guaranteed for which value has not yet been received. The ceiling is set in alignment
with the external borrowing plan (prepared as per the template below). Operations that resolve
arrears to pre-HIPC countries and result in reduction in outstanding stock of debt are excluded from
the ceiling. Court or arbitral decisions and related debt operations with respect to government
guarantees on existing external debt in dispute as of end-June 2024, that result in more favorable
terms to the guarantor than those of the initial debt, will be excluded from the ceiling. Debt
operations that restructure existing loans and that result in a reduction of the present value (present
value savings) compared with the initial debt and/or an improvement of the overall public external
debt service profile will be excluded from the ceiling. In the calculation of the present value savings

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for these debt operations, the discounted future stream of payments of debt service due on the
newly issued debt instrument (including all costs associated with the operation) will be compared
with the discounted future stream of debt service due on the instrument it replaces using a discount
rate of 5 percent and these amounts will not be capped by the nominal value of the debt.

The Federal Democratic Republic of Ethiopia: External Borrowing Plan for 2024/25
(Programmed Contracted Debt)

Volume of new debt PV of new debt in 2024/25

PPG external debt in 2024/25 (program purposes)
USD million 1/ Percent USD million 1/ Percent

By sources of debt financing 4,900 100 2,856 100

Concessional debt, of which 2/ 3,950 81 1,906 67
Multilateral debt 3,600 73 1,683 59
Bilateral debt 350 7 224 8
Non-concessional debt, of which 2/ 950 19 950 33
Semi-concessional 3/ - - - -
Commercial terms 4/ 950 19 950 33
1/ Contracting and guaranteeing of new debt. The present value of debt is calculated using the terms of individual loans and
applying the 5 percent program discount rate
2/ Debt with a grant element that exceeds a minimum threshold. This minimum is typically 35 percent, but could be established
at a higher level.
3/ Debt with a positive grant element which does not meet the minimum grant element.
4/ Debt without a positive grant element. For commercial debt, the present value would be defined as the nominal/face value.

XII. FOREIGN EXCHANGE INTERVENTION (FXI) FRAMEWORK (ITS)

34. The FXI rule allows but does not oblige, the NBE to intervene. FXI will be conducted via
auction that satisfies the following criteria: (i) access to bid at the auction is granted to all authorized
dealers in good standing, in the wholesale FX market, to sell or make purchases of FX for themselves
and on behalf of their clients; (ii) there should be no constraints imposed on the range or level of
the exchange rates that bidders can submit; (iii) allotment at the auction should be determined
solely on the basis of the bid prices submitted by participants to buy or sell FX.

XIII. OTHER DEFINITIONS

35. Privatization shall be understood to mean both the disposal to private owners by a
government unit of equity, controlling or otherwise, in a public corporation or quasi-corporation
(transaction in equity), and the disposal of intangible non-produced assets in the form of contracts,
leases, and licenses, where a government unit grants a license for the economic ownership of an
asset by allowing the licensee to use a natural resource (such as telecommunications spectrum) for
an extended period, with little or no intervention.

36. For the purposes of monitoring structural benchmarks, the following definitions will
be used:
• Tax expenditure is understood as any benefit under the tax code that deviates from the
benchmark treatment of the code and whose benefit to the relevant taxpayers could be

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alternatively affected through government spending (such as through the provision of

subsidies or other transfers to the relevant taxpayers).
• Revocation of tax incentives currently granted on a contractual, rather than legislative
basis, entails grandfathering of existing incentives until the term of the original benefit (the
case of corporate income tax holidays, for example). The revocation will therefore inhibit at a
first stage, the granting of new tax exemptions based on the definition of tax incentives
provided above.
• Subsidies are understood to include both explicit and implicit subsidies. The former are
defined as current unrequited transfers that government units make to enterprises on the
basis of the level of their production activities or the quantities or values of the goods or
services they produce, sell, export, or import. In turn, implicit subsidies can include, but need
not be limited to an official system of multiple exchange rates, payable tax credits, and
losses of government trading organizations whose function is to buy products and then sell
them at lower prices to residents or nonresidents as a matter of deliberate government
economic or social policy, the central bank accepting interest rates lower than the prevailing
market rates. The complete definition is included in the Government Finance Statistics
Manual 2014 (6.89 and 6.90).

XIV. REPORTING PROCEDURES TO THE IMF

37. Data on all the variables subject to quantitative performance criteria and indicative targets
and information on the progress towards meeting structural benchmarks will be transmitted
regularly to the IMF in accordance with the table shown below. Revisions to data will be forwarded
to the IMF within 5 days after being made. In addition, the authorities will transmit to IMF staff any
information or data not defined in this TMU but pertinent for assessing or monitoring performance
relative to the program objectives.

38. To effectively monitor the program performance and development of economic situation,
the Ethiopian authorities will provide the IMF with the information listed in next pages.

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Information Provider Periodicity and Due Date

Gross international reserves and foreign liabilities of the NBE Weekly, within five business
National Bank of Ethiopia (NBE), reported by the amounts in days of end of each week
the original currency of the assets and liabilities; and the
weight (in oz.) of holdings of monetary gold. Breakdown
between liquid and unencumbered reserves and reserves
that are pledged, swapped, or otherwise encumbered
Net domestic assets of the NBE NBE Monthly within six weeks of the
end of each month
Reserve Money NBE Monthly within six weeks of the
end of each month
Net claims on the general government MOF/NBE Monthly within six weeks of the
end of each month
Regional government’s fiscal data MOF Quarterly within twelve weeks of
the end of each month
Domestic Arrears incurred by the government MOF Monthly within six weeks of the
end of each month
External Arrears incurred by the government MOF/NBE Continuously with no lag

Claims on public enterprises by commercial banks. NBE/MOF Monthly within six weeks of the
end of each month
Claims on entities excluded as SOEs in paragraph 4 by NBE/MOF Monthly within six weeks of the
commercial banks, including, but not limited to, Addis end of each month
Ababa and Regional Housing and Liability and Asset
Management Company.
Federal Government Tax Revenue MOF Monthly within 45 days of the
end of each month
Rural and Urban Productive Safety Net Program MOF Monthly within six weeks of the
government's cash contributions end of each month
Stock of claims of the Ethiopian Petroleum Supply Enterprise MOF Monthly within six weeks of the
on the Fuel Price Stabilization Fund end of each month

Consumer Price Index NBE Monthly within six weeks of end

of each month
National Accounts, annual NDPC Within three weeks of any
revision or data release
Composite Indicator of Economic Activity (quarterly) and NBE Within six weeks of the end of
underlying indicators each quarter
Consolidated Budget Report of Federal and Regional MOF Quarterly within twelve weeks of
Government end of each quarter
Monetary Survey NBE Monthly within six weeks of end
of each month

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Information Provider Periodicity and Due Date

NBE’s outstanding credit to private commercial banks, CBE NBE Monthly within two weeks of
and DBE end of each month
Financial Soundness Indicators (aggregate and bank-by- NBE Quarterly, within eight weeks of
bank), including capital to risk-weighted assets, capital to the end of each quarter.
assets, NPLs to total loans, NPLs net of provisions to capital,
return on assets, return on equity, gross interest income to
total income, interest margin to gross income, non-interest
expenses to gross income, liquid assets to total assets, and
liquid assets to short term liabilities.
Lending and savings interest rates, interbank interest rates, NBE Monthly, within 30 calendar
term deposit rates. days
Credit data on distribution by sector (private/public); credit NBE Monthly, within 30 calendar
to enterprises (by economic sector); and credit to individuals days
(by purpose).
Bank-by-bank financial data of commercial banks and the NBE Quarterly, within eight weeks of
DBE, including balance sheets, income statements, net open the end of each quarter.
foreign currency positions, NPLs and liquidity positions
broken down by currency by template provided by the IMF
T-Bill and T-bond auction details NBE Bi-weekly, within five business
days of each auction/placement
T-bill and T-bond purchases and outstanding stocks by NBE Quarterly, within eight weeks of
institution. the end of each quarter.
Monetary policy operations and liquidity factors: weekly and NBE Monthly within 15 calendar days
monthly balances. Detailed table including: (1) intervention
on the money market of the central bank (Birr); (2) deposit
facilities; (3) ordinary tenders; (4) loan facility; (5) overnight
lending; (6) all structural operations; (7) FX swap exchange;
(8) open market operations; (9) minimum reserves; and
(10) excess reserves (including by institution); (11) central
bank policy rate; and (12) participation in open market
operations by institution.
Daily official exchange rate NBE Weekly, within five business
days of end of each week

Daily foreign exchange intervention by the NBE: (i) US$ NBE Weekly, within five business
amount in purchases and sales of foreign exchange in spot days of end of each week
and derivative transactions by counterparty, respectively; (ii)
US$ amount in net sales of foreign exchange by the NBE in
any 30-day rolling period; (iii) Daily cumulative net sales of
foreign exchange by the NBE in a given quarter; (iv) Share of
foreign exchange intervention by the NBE over total
interbank market transactions: (v) Exchange rate at which the
NBE buys or sells foreign exchange
Weekly US$ amount of trade volume, in interbank market NBE Weekly, within five business
and foreign exchange bureaus, respectively days of end of each week

INTERNATIONAL MONETARY FUND 79

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Information Provider Periodicity and Due Date

Daily data underlying the FX benchmark calculation NBE Weekly, within five business
days of end of each week
Interbank market transactions in the spot market for US NBE Weekly, within five business
dollars: total value transacted in US$, total number of days of end of each week
transactions, number of banks involved in transactions,
average value transacted in US$
Gross international reserves NBE Weekly, within five business
days of end of each week
Foreign exchange cash flows NBE Monthly, within ten business
days of end of each month

BoP data: exports, imports, services, transfers, and capital NBE Monthly, within six weeks of end
and financial account transactions of each month

Detailed international trade data on goods exports and NBE Monthly, within four weeks of
imports by commodities end of each month
Imports by type of institutions (e.g., state-owned enterprises NBE Monthly, within four weeks of
or government, and private sector) end of each month
New external debt obligations contracted and/or MOF/NBE Monthly, within four weeks of
guaranteed (concessional and non-concessional) by the end of each month with details
government of Ethiopia, including details on the amounts, of the loans contracted (creditor,
terms, and conditions of each new obligation terms, projects, estimated grants
element, and users––Federal
government’s direct use or
other purposes etc.)
Outstanding stock of external debt, disbursements/issuance MOF/NBE Monthly, within six weeks of end
to the government (for Federal government, breakdown to of each month
include the amounts for on-lending to public enterprises),
and debt service, by debtors, creditors, and type of debt
Disbursements of loans and grants to Federal government MOF Monthly, within six weeks of end
by each creditor/donor with breakdown into cash and non- of each month
cash components
Outstanding stock of domestic debt, MOF/NBE Monthly, within six weeks of end
disbursements/issuance, and debt service, by debtors, of each month
creditors, and type of debt
Monthly US$ amount of foreign exchange sales by the NBE Monthly within 15 calendar days
National Bank of Ethiopia towards payments to suppliers of
Ethiopian Petroleum Supply Enterprise—provided in the NBE
cashflow table
Public Enterprise Financial Statements (those under PEHAA MOF Annually, end September.
and EIH)

80 INTERNATIONAL MONETARY FUND

Statement by the Executive Director, Mr. Willie Nakunyada, and by the Advisor of the
Executive Director, Mr. Mawek Tesfaye Mengistu, on
The Federal Democratic Republic of Ethiopia
October 18, 2024

I. Introduction

1. Our Ethiopian authorities appreciate the candid discussion with staff during the first Extended
Credit Facility (ECF) review mission. They appreciate the Fund’s continued strong support in close
collaboration with other development partners.

2. The Ethiopian authorities have embarked on comprehensive reforms to address long-standing

economic challenges supported by the IMF's ECF program approved on July 29, 2024. They have
taken bold reform measures, including transitioning to an interest rate-based monetary policy,
adopting a market-determined exchange rate regime, strengthening financial sector resilience,
removing less targeted subsidies, and tax reforms, while protecting the most vulnerable. They
continue to underline their reform credentials and, in some cases, exceeding expectations, reflecting
the authorities’ strong commitment, well-sequenced reform measures, extensive preparatory work,
and effective execution. Going forward, the authorities are determined to consolidate initial reform
gains to durably address persistent macroeconomic imbalances, deepen market development, and
further build confidence. As such, they recently released their second Home-Grown Economic
Reform Agenda (HGER 2.0) whose objectives are supported by the ECF program, with special focus
on ensuring macroeconomic stability, fostering a conducive investment climate, boosting productivity
across key sectors, and building an efficient civil service.

II. Program Performance

3. The program performance was strong, with all quantitative performance criteria (QPCs) and
indicative targets (ITs), being met. The target for the accumulation of net international reserves (NIR)
was exceeded by a significant margin, while there was limited foreign exchange intervention by the
NBE and no new monetary financing of the budget deficit. The authorities have requested a
modification of the end-December 2024 and end-June 2025 QPC, and end-March IT on net
international reserves to save part of the overperformance.

4. All five structural benchmarks (SBs) set for end-September 2024 were implemented, one
with a slight delay. The SB regarding the implementation of the emergency liquidity assistance
framework was approved by the NBE’s Board on October 8, 2024, and the directives were issued on
October 15, 2024. The authorities implemented the first quarterly electricity tariff increase under the
multi-year plan on September 11, 2024. Additionally, the Council of Ministers adopted the National
Medium-Term Revenue Strategy (NMTRS - 2024/25-2027/28) already published on the Ministry of
Finance’s website. The National Bank of Ethiopia (NBE) has issued a circular to banks that are not in
compliance with the regulatory threshold for the net open position (NOP), requiring full compliance
by the end of June 2025. Audited financial statements for key state-owned enterprises (SOEs) have
been completed and published. Furthermore, regarding end-December SB, NBE is on track to publish
audited financial statements for 2021/22 and 2022/23 by the end of January 2025, with only a one-
month delay. Further, four new SBs have been agreed upon for April-June 2025, aimed at further
strengthening fiscal transparency, fostering financial liberalization, and ensuring that fiscal targets are
consistent with program objectives. Considering the strong program performance and
commitment to reforms, the authorities seek the Executive Directors’ support in completion of
the first ECF review, and associated requests.

III. Recent Economic Developments and Outlook

5. Economic growth is expected to remain strong at 6.1 percent in 2023/24 1, despite a

moderation from the 7.2 percent growth recorded in 2022/23. The strong growth performance has
been broad-based, largely benefitting from a favorable agricultural season. At the same time, the
industrial sector performance has strengthened on the back of the peace dividend, with strong growth
anticipated in both medium and large manufacturing industries. The services sector is also registering
a strong post-pandemic rebound, alongside strong growth observed in telecommunications and air
transport services. Looking ahead, near-term growth is expected to moderate due to tight global
financial conditions and short-term tradeoffs of the macroeconomic reforms. However, in medium-
term, growth is projected to pick up to around 8.0 percent as the benefits of reforms take hold.
Nevertheless, the outlook remains dominated by risks from spillovers from regional conflicts and
volatile commodity prices. Importantly, the authorities’ proven track record of reform implementation
should provide further growth impetus.

6. Inflation continued its steady decline from a peak of 37 percent in May 2022 to 17.2 percent
in August 2024. This ongoing disinflationary trend reflects tight fiscal and monetary policies pursued
by the authorities, alongside supply-side improvements, while the full effects of recent
macroeconomic reforms—including the impact of exchange rate realignment and adjustments to
administratively determined prices—are yet to fully materialize. Although these adjustments are
expected to lead to transitory spikes in inflation, the increase in prices is anticipated to occur at a
slower pace than initially expected. In the medium-term, a gradual disinflation path towards single
digits is expected. Meanwhile, the current account deficit is forecasted to widen from 2.6 percent in
2023/24 to 4.4 percent of GDP in 2024/25, driven by higher imports due to improved foreign
exchange supply. That said, gross official reserves which stood at USD 1.4 billion (0.7 months of
prospective import coverage) at the end of 2023/24, were USD 418 million higher than expected at
the time of program approval and are expected to increase to USD 3.1 billion (1.4 months of import
coverage) in 2024/25, still higher than initially anticipated, reflecting strong export performance.

IV. Fiscal Policy and Debt Management

7. The authorities are diligently advancing their revenue-led fiscal consolidation plan. They
have established a ministerial-level National Tax Reform Taskforce (NMTRS) to spearhead
implementation of tax revenue enhancing reforms. The recently adopted NMTRS details specific tax
policies and administrative measures is geared at achieving their ambitious tax revenue target. Strong
upfront tax policy and administrative measures have already been implemented and are expected to
yield an additional 1.0 percent of GDP in 2024/25, in line with their goal of increasing the tax-to-
GDP ratio by 4.0 percentage points by the end of the program period. To support this, Parliament has
enacted a breakthrough new VAT proclamation that aims to broaden the tax base, significantly

1Latest data from the authorities indicates that real GDP growth for 2023/24 was 8.1 percent, outperforming the expected
6.1 percent growth. The agriculture, industry, and service sectors are estimated to have grown by 7.0 percent, 9.2 percent,
and 7.7 percent, respectively.

2
streamline exemptions, and clarify the mandates of federal and regional governments, with an
anticipated revenue yield of 0.5 percent of GDP. This proclamation, among others, introduces VAT
on electricity and water while protecting vulnerable populations through a VAT exemption threshold.
Additionally, as the full rollout of the excise stamp regime is set for April 2025, a directive on excise
stamp management has been implemented, along with increased specific rates on alcohol and tobacco
to adjust for inflation since 2020, thereby boosting revenue. Significant gains are also expected from
the implementation of the Real Estate Property Tax Proclamation as well as customs duties due to the
new exchange rate regime. Concurrently, the authorities are committed to strengthening tax
administration including by leveraging digitalization. They have completed the TADAT assessment
earlier than expected, which will inform their reform priorities. Relatedly, they allocated a budget for
the Integrated Tax Administration System to help modernize and strengthen their tax administration
efforts. Their efforts also focus on enhancing taxpayer registration, e-filing, compliance risk
management, centralized incentive mechanisms, and tax audit efficiency.

8. The authorities' fiscal policy will continue to prioritize critical social and capital spending
while gradually phasing out untargeted subsidies. A Supplementary Budget for 2024/25 has been
presented to the Council of Ministers for adoption. It includes a fiscal package amounting to
1.5 percent of GDP, aimed at mitigating the effects of exchange rate reforms on the most vulnerable
populations. In September 2024, they raised benefits for urban Productive Social Safety Net Programs
(PSNP) by 20.7 percent and plan to increase benefits for rural PSNP beneficiaries in January 2025.
Additionally, the PSNP's shock response facility has been activated, delivering two months of cash
benefits, while resources for livelihood enhancement have been significantly increased. Additional
measures to protect the most vulnerable includes temporary direct subsidies for selected food items
and medicine, an increased fertilizer subsidy, and salary increments for public sector employees,
prioritizing low wage earners.

9. To further cushion the impact of foreign exchange reform on cost of living, temporary and
gradually declining fuel subsidies have been introduced. The first fuel pump price increase was
implemented in October 2024, with the ultimate goals of eliminating the subsidy in a gradual manner
within one year. The comprehensive and well-planned fiscal package increases public support for the
reform measures. Looking ahead, the authorities plan to focus their fiscal policy on supporting
inclusive growth through increasing spending in priority sectors—health, education, and social safety
nets—to levels above the pre-pandemic levels. Concurrently, they are committed to enhancing public
financial management, improving cash management, and managing fiscal risks from SOEs. This
includes the full rollout of an Integrated Financial Management Information System (IFMIS), the
introduction of a public sector obligations (PSO) framework and increasing transparency by
publishing mid-year budget reviews and quarterly budget execution reports.

10. The authorities remain commitment to refrain from contracting non-concessional loans and
avoiding externally financed new investments by SOEs. Consequently, external public debt declined
from 29.0 percent of GDP in 2020/21 to 15.4 percent of GDP in 2023/24. They are determined to
restore debt sustainability and aim to achieve a moderate level of debt distress by the end of the
program period. In this vein, they are closely engaging with both official bilateral and commercial
creditors to reach an agreement in principle on the terms of the debt treatment that aligns with
program parameters by the time of the second ECF review. Their latest engagement with Eurobond
holders took place on October 1, 2024, during a global investor call, where they updated investors on
recent macroeconomic developments and called for their strong support. They reaffirmed their

3
commitment to avoid contracting non-concessional loans while continuing to evaluate the
implications of any new concessional debt before making commitments. Additionally, they are
engaging with prospective lenders for the Koysha dam project to ensure that loan terms align with
program parameters. Looking ahead, with the support of the Fund’s technical assistance, they plan to
develop a medium-term debt management strategy to enhance debt management practices. Further,
the authorities are cognizant of the need to develop a T-bills market as a primary source of deficit
financing going forward, leveraging on the envisaged shift towards greater financial liberalization. To
this end, they plan to further enhance auction transparency and began awareness creation to
encourage increased participation in T-bills auctions.

V. Monetary, Exchange Rate, and Financial Sector Policies

11. The authorities reaffirmed their resolve to maintain a tight monetary policy stance to anchor
expectations and ensure price stability. In this connection, base money growth declined from
32.0 percent in 2022/23 to a contraction of 1.1 percent in 2023/24. Their restrictive policy stance,
which includes limits on the NBE credit to the government and restrictions on credit to the private
sector, has supported the steady decline in inflation. The authorities are determined to maintain this
restrictive policy stance, to counter near-term inflationary pressures. To this end, they will continue to
explore a mix of policy tools, including quantitative measures, while adhering to their commitment to
transition to an interest rate based monetary policy framework. Concurrently, the NBE is advancing
its modernization of the monetary policy framework. Since the introduction of interest-rate based
monetary policy framework, the NBE has conducted seven liquidity-absorbing biweekly Open
Market Operations (OMO) until October 3, 2024, with strong participation from banks at a fixed
policy rate of 15 percent. Additionally, banks are utilizing standing facilities offered by the NBE,
which set at ±3 percent around the policy rate, supporting efficient liquidity management. In July
2024, the NBE issued an interbank money market directive and expects the establishment of a central
securities depository (CSD) by December 2024, alongside the launch of an interbank money market
trading platform, further accelerating the modernization of monetary policy operations and the
development of the money market.

12. The new flexible exchange rate regime is progressing smoothly, achieving significant success
in reducing the parallel market premium from around 100 percent at the time of the reform to about
5 percent. The foreign exchange supply response has been positive, albeit slower than expected, with
increasing remittances and export receipts. Key reforms—such as eliminating distortive current
account controls, removing the surrender requirement to the NBE, consolidating foreign exchange
directives, relaxing the Franco Valuta import scheme, lifting bans on selected import items, restricting
non-transparent pricing by banks, and reforming gold purchases by the NBE—have supported the
foreign exchange market’s development and contributed to early successes. On October 2, 2024, the
NBE granted licenses to five non-bank independent foreign exchange bureaus and plans to lift the
requirement for exporters to submit non-surrendered foreign exchange after one-month by the end of
October 2024 giving further impetus for the development of the FX market. Further, the NBE will
continue strengthening monitoring and enforcement of foreign exchange directives while working on
communication to improve market participants’ understanding of the new regime. The authorities are
planning to conduct a market survey to identify any impediments to efficient market functioning,
while reviewing IMF’s Article VIII mission recommendations. They have also prepared a detailed
plan to settle the legacy letters of credit (LCs) related to fuel imports and renewed their commitment
to market financing for future fuel imports. That said, they remain determined to limit foreign

4
exchange intervention solely to addressing disorderly market conditions. Meanwhile, the authorities
remain committed to increasing foreign reserve coverage to 3.5 months of prospective imports by the
end of the program period.

13. Safeguarding financial sector stability continues to rank high on the authorities’ agenda. To
this end, the NBE issued several directives aimed at enhancing financial sector stability and
strengthening good governance in July 2024. They revised directives on asset classification and
provisioning to align with international best practices. Significant reforms are also underway at the
largest publicly owned bank, the Commercial Bank of Ethiopia (CBE), including efforts to restructure
and recapitalize the bank with support from the World Bank under their Financial Sector
Strengthening Project (FSSP). To this end, government injected Birr 900 billion through the issuance
of bonds to address problematic legacy SOE loans and strengthen the bank’s capital position,
including to withstand losses associated with foreign exchange reforms. The authorities reaffirm their
commitment to steadfast reforms at CBE, ensuring the bank is set on a sound commercial footing, has
enhanced governance, and clearly defined public sector obligations. Additionally, the NBE is
upgrading the sector’s capital framework to align with Basel II/III recommendations, also benefiting
from Fund TA.

VI. Structural Reforms

14. Our authorities recognize the importance of far-reaching structural reforms alongside
macroeconomic reforms designed to support their objective of achieving higher, sustainable, and
inclusive private sector-led growth. Towards this end, they are committed to sustaining their efforts to
improve the business environment by creating an improved legal and regulatory framework, gradually
liberalizing previously closed sectors, implementing targeted economic sector reforms, advancing
regional and global trade integration, and increasing access to finance. The expected launch of the
Ethiopian Securities Exchange alongside the roll-out of the National Digital ID is anticipated to
enhance private sector investment and increase financial inclusion. At the same time, the authorities
will press ahead with SOE reforms by strengthening transparency and addressing governance
vulnerabilities. Public sector obligations of SOEs will be clearly defined and costed, while the
privatization agenda will continue. Reforms in the power sector will also be sustained, including the
multi-year tariff increase plan by Ethiopian Electricity Power (EEP) towards cost recovery levels. At
the same time, the authorities are diligently working to strengthen the NBE’s autonomy and
governance. To this end, NBE’s amended proclamation has been tabled for parliamentary
consideration, benefiting from IMF staff’s feedback, while the authorities recently completed IMF’s
Safeguard Assessment and they look forward to leveraging its recommendations.

15. Recognizing Ethiopia’s susceptibility to climate shocks, the authorities have placed the
climate agenda at the center of the authorities’ reform initiatives. The recent landslide following
heavy rains in July 2024, which led to loss of lives and destruction of property, is another reminder of
Ethiopia’s vulnerability to recurrent climate shocks. As such, the authorities are working diligently to
enhance climate adaptation and mitigation to meet their ambitious Nationally Determined Targets. To
this end, they continue their reforestation campaign and have embarked on a deliberate tree planting
exercise during this year’s rainy season under their flagship Ethiopia’s Green Legacy Initiatives.
Nevertheless, given significant financing needs, they call on development partners to support these
efforts. They are also reviewing the IMF’s C-PIMA and World Bank’s CCDR recommendations to
inform their policy priorities.

5
VII. Conclusion

16. The Ethiopian authorities are making determined efforts to sustain the reform momentum,
building on the early successes achieved through the implementation of landmark reforms. They
reaffirm their commitment to the objectives of the ECF arrangement and are prepared to timely
implement appropriate contingent measures. They are dedicated to strengthening the flexible
exchange rate system, durably entrench price stability, and restore external debt sustainability. They
also plan to intensify their domestic resource mobilization efforts to create space for critical social
and development spending, and steadfastly implement structural reforms to support strong,
sustainable, and inclusive growth. The authorities appreciate the support of the Fund and other
development partners in their ambitious reform agenda. They seek the Executive Directors’ support in
completion of the first review under the ECF arrangement, considering the strong program
performance and their commitment to stay the course on reform implementation. Furthermore, they
underscore that the success of their reform efforts hinges on expedited debt treatment, as well as
continued financial and technical assistance from development partners. Accordingly, they seek their
creditors’ support to provide timely debt treatment consistent with program parameters.