Ethiopia hopes painful reforms will stabilise economy

Significance

Ethiopia applied for IMF support in September 2021 but the ensuing negotiations were difficult. However, up-front implementation of major reforms eventually convinced the IMF to agree to a programme that sets economic policy priorities for the coming years.

Impacts

• The exchange rate float will aggravate inflation and trigger a more restrictive monetary policy with higher interest rates.
• After the failure of recent privatisation efforts, the government is likely to relaunch new efforts as early as 2025.
• Painful reforms and IMF disbursements are both heavily front-loaded, raising the risk that reform momentum may fade somewhat from 2025 on.