IMF Executive Board approves a four-Year US$3.4 billion Extended Credit Facility Arrangement for Ethiopia
Development economists, financial analysts, human rights groups, and the critical masses have shown frustration following the Government of Ethiopia’s (GoE) announcement of floating the currency in the market freely last Sunday.
Just on the following day, Monday, the country’s currency (Birr) devaluated by 30 per cent against the dollar compared to what the rate was a week ago.
When the US Dollar has traded with 74.7 birr in cash buying rate and 76.2 birr in cash selling rate, the Euro has traded 81 Birr in cash buying rate and 82 Birr in cash selling rate at the country’s biggest state-owned bank, Commercial Bank of Ethiopia.
The government is keen to modernize the macroeconomic policy frameworks, catalyze foreign direct investment and trade, promote economic potentials, and ensure quality and efficient service delivery.
According to the National Bank of Ethiopia (NBE) Foreign Exchange Directive NO. FXD/01/2024, non-bank companies including independent foreign exchange bureaus can purchase and sell foreign currency notes freely which is a historic policy shift in the Ethiopian banking system.
“Banks and authorized foreign exchange dealers are allowed to buy and sell foreign currencies from/to their clients and among themselves at freely negotiated rates,” the directive reads.
The government decision came right after the International Monetary Fund (IMF) insisted the government to open the economy and liberalize the FX market during the long-standing negotiations aimed at securing over $10.5 billion bailout in exchange.
The IMF Board approved US$ 3.4 billion for Ethiopia with an an immediate disbursement equivalent to US$1 billion, IMF announced late yesterday in a press release.
“The four-year financing package will support 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,” sated in the press release.
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Most parts of the country are in a violent and hybrid-like war, and thus human rights organizations like Human Rights Watch and Amnesty International have recently accused the Ethiopian government of grave human rights violations that amount to “war crimes”.
Concerned Ethiopian citizens have expressed their frustration on social media over the fate of the people and the country’s economy arguing that the market-based exchange rate came into effect at a time when the country’s foreign reserve is depleted, and the high inflation rate is severely impacting the public along with war-induced socioeconomic agonies.
Dr. Tigist Mekonnen, development economist at World Bank Group said, “A market-based foreign exchange regime is mainly determined by the ability to supply goods and services of that specific country and the demand of importing countries,” in her LinkedIn post.
“However, because the regime has declared war against its people in the last 3 years, let alone exporting the government cannot feed its own people. In addition, one of Ethiopian’s allies, which is the USA has suspended the country from the African Growth and Opportunity Act (AGOA) where 32 African countries benefit from membership in AGOA trading,” she adds.
The US Embassy in Addis Ababa, nevertheless, welcomes the government decisions.
— U.S. Embassy Addis (@USEmbassyAddis) July 29, 2024
Similarly, the UK Embassy in Ethiopia acknowledges the government’s decision hours after the US statement.
— UK in Ethiopia 🇬🇧 (@UKinEthiopia) July 29, 2024
Hone Mandefero, Advocacy Director of the Amhara Association of America (AAA) has strongly denounced the government move.
“20+ years contradiction between ethnic federalism & developmental state ambitions ended with the triumph of ethnic politic… now offering extractive business opportunities to foreigners in exchange for financial bailouts to fund their #WarOnAmhara and complicity in their apartheid ambitions,” he posted on X-formerly Twitter.
“In the midst of proliferating armed conflicts, inflation, and structural economic imbalances, liberalization of the foreign exchange regime will prove to be yet another blunder of the incompetent and corrupt regime,” said Biruk Haregu, a Research Assistant at the Institute for a Sustainable Earth in his post on X-formerly Twitter.
Some share their optimism behind the shadow. “Ethiopian economy is fully opening up. Foreign currency exchange regime moving to a market-based system. Interesting times with opportunities and dangers ahead,” commented Alexander Demissie, a Founding Director of The China-Africa Advisory.
Ethiopia has not received any IMF funds since the war between the federal forces and TPLF that broke out in October 2020.
IMF has been repeatedly requested by Ethiopian rights groups in the diaspora to stop funding the regime although the deal covertly reached with the government to release more than $10.5 billion bailouts from IMF, World Bank Group and other creditors in April.
