The International Monetary Fund has raised concerns about Ethiopia’s ambitious reform programme, warning that dwindling donor support could stall progress.
In a report released Tuesday, the IMF acknowledged Ethiopia’s strides in cutting subsidies, tightening monetary policy, and advancing tax reforms under its $3.4 billion loan deal.
Despite meeting key benchmarks, Ethiopia faces rising risks, including a widening parallel currency market and ongoing security instability, which could derail recovery.
The IMF stressed that Ethiopia, still in default, must secure broader debt relief after reaching a tentative deal with official creditors.
Foreign aid, once a lifeline, has plummeted from 12% of GDP a decade ago to less than 4%, with further declines expected.
IMF Deputy Managing Director Nigel Clarke warned that reduced aid and fragile security “pose significant downside risks” to the country’s outlook.
Humanitarian needs remain acute, with one in five Ethiopians requiring assistance and UN relief operations severely underfunded.
While Ethiopia has moved towards liberalising its foreign exchange market, the IMF flagged continued issues including liquidity constraints, transaction costs, and a 2.5% central bank commission.
These inefficiencies have driven the parallel market premium to 15%, complicating currency reform efforts and undermining investor confidence.
Inflation has dropped more rapidly than expected, thanks to strict monetary controls and capped credit growth, the report noted.
Yet, the IMF urged faster adoption of a modern interest-rate-based framework to enhance policy transparency and economic credibility.
Privatisation delays and sluggish foreign direct investment also threaten to widen the balance of payments gap and stall reserve accumulation.
Still, the export outlook has brightened, with export revenues projected to reach 12% of GDP in 2024/25—up from 9.6% previously forecast.
Earlier this month, Ethiopia received a $262 million disbursement from the IMF, providing a short-term boost to its reform momentum.