IMF Country Report No.

25/27

THE FEDERAL DEMOCRATIC

REPUBLIC OF ETHIOPIA
SECOND REVIEW UNDER THE EXTENDED CREDIT FACILITY
January 2025 ARRANGEMENT 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 January 17, 2025, following the discussions that ended on
November 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
December 18, 2024.
• A Debt Sustainability Analysis prepared by staffs of the World Bank and the IMF.
• A Supplementary Information of the Staff Report prepared by IMF staff.
• A 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
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Telephone: (202) 623-7430 • Fax: (202) 623-7201
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Price: $18.00 per printed copy

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Washington, D.C.

© 2025 International Monetary Fund

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 PR25/006

IMF Executive Board Completes the Second Review under the

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

• The IMF Executive Board completed the second review of the arrangement under the
Extended Credit Facility (ECF) for Ethiopia, allowing the authorities to draw the equivalent
of about US$248 million (SDR 191.7 million). The ECF was approved by the IMF Executive
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 demonstrated strong commitment to achieving the

objectives of the Fund-supported program. Implementation of ECF-supported reforms is
advancing well.

Washington, DC – January 17, 2025: The Executive Board of the International Monetary
Fund (IMF) completed today the second review of the 48-month Extended Credit Facility
(ECF) for Ethiopia. The Board’s decision allows for an immediate disbursement of about
US$248 million (SDR 191.7 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$1.611 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 were met. The government’s contribution to the targeted
social safety nets (indicative target) was lower-than-targeted mostly due to preparations
needed to expand safety net programs and absorb the significantly increased budgetary
envelope. The structural benchmark on finalizing the audited accounts of the National Bank of
Ethiopia (NBE) has been reset from end-January 2025 to end-March 2025 to allow time for
completion.

Foreign exchange market functioning has continued to improve with the authorities taking
significant policy actions to strengthen market efficiency. NBE has maintained tight monetary
and financial conditions, and modernization of the monetary policy framework is advancing.

Progress in raising domestic fiscal revenues, strengthening state-owned enterprises, and

anchoring financial stability is promising, with continued commitment needed to sustain the
achievements thus far. Expanding social safety nets is critical to mitigating the impact of
reforms on vulnerable people.

The authorities continue their efforts to restore debt sustainability and are taking steps to
secure a debt treatment. The progress made on debt restructuring negotiations under the
Common Framework is welcome. The financing assurances received, and adjustment efforts
made are consistent with IMF policy requirements and program parameters.

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 2

Following the Executive Board discussion, Mr. Nigel Clarke, Deputy Managing Director, and
Chairman of the Board, made the following statement:

“The authorities continue to make strong progress in implementing their Fund-supported

program and addressing macroeconomic imbalances. The transition to a flexible exchange
rate has advanced further, supported by macroeconomic and foreign exchange market policy
measures, and the parallel market premium has stabilized in single digits with rising FX
supply.

“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 avoiding monetary
financing of government deficits are essential to reducing imbalances and ensuring
macroeconomic stability.

“Reaching a positive real monetary policy rate is a key step to build the credibility of the new
monetary policy framework and change market expectations for inflation and the exchange
rate. The authorities should also carefully sequence removal of the credit growth cap along
with policy rate changes and clearly communicate policy intentions. Close supervision and
enforcement of net open position regulations for banks will help address financial sector
vulnerabilities.

“The supplementary budget that was approved by parliament in late November 2024,
maintains fiscal targets in line with program objectives. The authorities should expedite efforts
to expand the targeted social safety net (PSNP) to protect vulnerable households and ensure
efficient use of public resources. To bring fuel prices to full cost recovery is important for
mobilizing revenues and rebuilding fiscal buffers. Sustained tax revenue mobilization efforts
such as the implementation of the VAT and excise tax reforms continue for creating sufficient
space for social and development spending needs.

“The new law governing the NBE represents a significant advance on the existing legal
framework in most respects. However, closing the remaining gaps with respect to governance
and autonomy is important.

“Continued implementation of financial sector reforms, including modernizing the bank

regulation framework, strengthening bank supervision, and monitoring non-performing loans,
will support financial sector stability.

“The substantial progress made towards reaching an agreement on a debt treatment with the
Official Creditor Committee under the G20 Common Framework is an important step towards
restoring debt sustainability. The authorities are working on having an agreed Memorandum of
Understanding by the time of third review, while also making progress on a comparable
treatment with Eurobond holders and other external commercial creditors.”

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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

Prel. Proj. Proj. Proj. Proj. Proj.

Output

Real GDP growth (%) 6.4 7.2 8.1 6.6 7.1 7.7 8.0 7.8

Prices

Inflation - average (%) 33.9 32.5 26.6 20.7 16.9 10.6 9.5 8.8

General government finances

Revenue (% GDP) 8.1 7.9 7.3 8.5 9.8 10.8 11.2 11.4

Expenditure (% GDP) 12.7 10.8 9.5 11.6 12.3 13.2 13.4 13.4

Fiscal balance, including grants (% GDP) -4.2 -2.6 -2.0 -1.7 -2.0 -1.9 -1.7 -1.5

Public debt (% GDP)1 48.9 40.2 34.4 45.6 39.8 36.9 34.4 32.2

Money and Credit

Broad money (% change) 27.2 26.6 14.1 26.1 29.3 29.4 21.3 20.4

Credit to private sector and state-owned 18.9 24.1 9.7 -24.0 42.2 42.6 25.6 23.2
enterprises (% change)2

Balance of payments

Current account (% GDP) -4.0 -2.9 -2.9 -4.4 -3.0 -2.5 -2.1 -2.0

FDI (%GDP) 2.6 2.1 1.9 3.4 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 3.5

External debt (% GDP) 24.0 18.1 15.1 29.3 26.2 24.0 21.9 19.1

Exchange rate

Real effective exchange rate (% change, 10.3 27.9 12.6 … … … … …

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.
2/ Projections from 24/25 include impact of CBE recapitalization

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 THE FEDERAL DEMOCRATIC
REPUBLIC OF ETHIOPIA
SECOND REVIEW UNDER THE EXTENDED CREDIT FACILITY
December 18, 2024 ARRANGEMENT 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’
Homegrown Economic Reform Agenda. The Fund-supported program addresses
macroeconomic imbalances, aiming to restore external debt sustainability, and lay the
foundations for high, private sector-led growth. Strong ownership has underpinned
early success of reforms, strengthening support for the authorities’ program. Foreign
exchange (FX) market functioning is improving; and initial steps to modernize monetary
policy, mobilize domestic revenue, enhance social safety nets, strengthen state-owned
enterprises (SOEs), and anchor financial stability are promising, with continued
commitment needed to sustain their success. Debt discussions with the Official Creditor
Committee of the Common Framework are advancing. Staff assesses that there is
sufficient progress towards an agreement on the key terms of a debt treatment
consistent with reaching a moderate risk of debt distress by the end of the program.

Policy discussions. The second review of the ECF focused on: (i) developments in the
FX market, and policy measures to strengthen FX supply and FX market efficiency;
(ii) the monetary policy stance and progress towards reaching positive real interest rates
by end-March 2025; and (iii) next steps for resource mobilization reforms and fuel
subsidy rationalization.

Program performance. Program performance has been generally in line with program
commitments and all quantitative performance criteria (QPCs) and most indicate targets
(ITs) were met. The indicative target on the budgetary contribution to Productive Social
Safety Net Program (PSNP) was missed. Staff support resetting the SB on finalizing the
NBE audit from end-January 2025 to end-March 2025 to allow time for completion.

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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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Approved By Discussions took place in Addis Ababa, November 12–26, 2024. The mission
Annalisa Fedelino held discussions with Minister of Finance Ahmed Shide, Governor of the
(AFR) and Bjoern National Bank of Ethiopia Mamo E. Mihretu, and other senior officials. The staff
Rother (SPR) team comprised of Messrs. Piris Chávarri (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 ___________________________________________________________________________________________ 4

PROGRAM PERFORMANCE ________________________________________________________________________ 4

RECENT DEVELOPMENTS __________________________________________________________________________ 5

OUTLOOK AND RISKS _____________________________________________________________________________10

POLICY DISCUSSIONS _____________________________________________________________________________12

A. Monetary Policy _________________________________________________________________________________12
B. Exchange Rate ___________________________________________________________________________________13
C. Fiscal Policy and SOE Reform ____________________________________________________________________15
D. Debt _____________________________________________________________________________________________17
E. Financial Sector __________________________________________________________________________________18
F. Safeguards and Governance _____________________________________________________________________19

PROGRAM MODALITIES __________________________________________________________________________20

STAFF APPRAISAL _________________________________________________________________________________23

BOXES
1. Poverty Reduction and Growth Strategy _________________________________________________________22
2. Assessment of Exceptional Access Criteria and Policy Safeguards on High Combined Credit ____23

FIGURES
1. Exchange Rate Developments _____________________________________________________________________ 6
2. Growth and Inflation ______________________________________________________________________________ 7
3. Monetary Conditions______________________________________________________________________________ 8
4. Federal Tax Revenue ______________________________________________________________________________ 9
5. Fuel Price Structure _______________________________________________________________________________ 9

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6. Electricity Tariff ___________________________________________________________________________________ 10

7. The Authorities’ Illustrative Debt Restructuring Scenario Indicators of PPG
Debt, 2025/26–2034/35 ____________________________________________________________________________20

TABLES
1. Selected Economic Indicators, 2020/21–2028/29 _________________________________________________27
2a. General Government Financial Operations, 2020/21–2028/29 (Millions of Birr) _________________28
2b. General Government Financial Operations, 2020/21–2028/29 (Percent of GDP) ________________29
3a. Monetary Survey and Central Bank Accounts, 2020/21–2028/29 (Millions of Birr) ______________30
3b. Monetary Survey and Central Bank Accounts, 2020/21–2028/29 (In percent of GDP) ___________31
4a. Summary Balance of Payments, 2020/21–2028/29 (In millions of U.S. dollars) __________________32
4b. Summary Balance of Payments, 2020/21–2028/29 (In percent of GDP) _________________________33
5. Financial Soundness Indicators of the Banking Sector____________________________________________34
6. External Financing Requirements and Sources, 2023/24–2027/28 ________________________________34
7. Access and Phasing Under the Extended Credit Facility __________________________________________35
8. Indicators of Fund Credit, 2023/24–2039/40 _____________________________________________________36
9. Quantitative Performance Criteria and Indicative Targets, June 2024–September 2025 __________37
10. Structural Benchmarks __________________________________________________________________________38
11. Public and Publicly Guaranteed Debt Profile ____________________________________________________39

ANNEX
I. Risk Assessment Matrix ___________________________________________________________________________40

APPENDIX
I. Letter of Intent____________________________________________________________________________________42
Attachment I. Memorandum of Economic and Financial Policies ___________________________44
Attachment II. Technical Memorandum of Understanding _________________________________70

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CONTEXT
1. Strong ownership has underpinned the early success of reform measures and further
strengthened support for the authorities’ program. Following the smooth adoption of a more
flexible exchange rate at end-July 2024, the authorities have continued to implement reforms under
their Homegrown Economic Reform Agenda (HGER). Socio-economic circumstances are challenging,
with inflation, areas suffering food insecurity and conflict, and displacement affecting millions of
people. In this context, the authorities’ reforms aim to address macroeconomic imbalances, restore
external debt sustainability, and lay the foundations for inclusive, private-sector-led growth. Foreign
exchange (FX) market functioning is improving, while uncertainties about the path of the exchange
rate and market operations continue to affect behavior. Steps to modernize monetary policy,
mobilize domestic revenue, enhance social safety nets, strengthen state-owned enterprises (SOEs),
and anchor financial stability continue. The program is monitored on a quarterly basis for the first
and second review to maintain close engagement during heightened uncertainty.

PROGRAM PERFORMANCE
2. Performance to date has been in line with program commitments. All applicable
quantitative performance criteria (PCs) and all-but-one indicative targets (IT) for end-September
2024, were met (Text Table 1). The IT on government contributions to the targeted social safety nets
was missed due to preparatory steps and interagency coordination required to expand coverage
and absorb the significantly increased budget.

3. Completion of structural benchmarks (SBs) is advancing. Four end-September 2024 SBs

were met, while one (implementation of an emergency liquidity assistance framework) was
implemented with delay in mid-October to allow for incorporation of comments from IMF staff.
Selection of an external auditor for the audit of the 2022/23 financial statements has been finalized,
with publication now expected by March-2025 (two months delayed, structural benchmark). A draft
amendment to the NBE Proclamation (end-December 2024 SB) was sent to Parliament in June 2024
and is currently under parliamentary review. While the draft law introduces important improvements
in critical areas including mandate and hierarchical objectives, limiting financing of the government,
and collegial decision-making, among others, it departs from leading practices with respect to
central bank autonomy and accountability.

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Text Table 1. The Federal Democratic Republic of Ethiopia: Quantitative Performance

Criteria and Indicative Targets, June 2024-September 2024
(in millions of Ethiopian Birr, unless otherwise indicated)

end-Jun 2024 Aug. 16, 20241 end-Sep 2024

Prel. Initial level Performance Criteria Performance Criteria

Prog. Actual Status Prog. Adj. Actual Status

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 -5,972 Met
includes grants and excludes interest payments) 2/, 3/
Net international reserves (floor, cumulative change since previous June, US$ millions) (end-Jun 2024 is for 1,242 Met
793 630 1328 Met 500 534
initial 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 N/A 153,542 Met
beginning of the current fiscal year)

Net NBE claims on the general government (ceiling, cumulative change since previous June) (end-June 2024 632,253 0 -10895 Met 0 N/A -6,727 Met
for 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 N/A 0 Met
enterprises (ceiling, US$ millions) 4/
Accumulation of external payment arrears by the general government, the NBE and public enterprises (ceiling, 0 0 Met 0 N/A 0 Met
US$ millions)

Indicative targets
Gross claims on public enterprises by commercial banks (ceiling, cumulative change since previous June) (end- 747,485 N/A N/A N/A 37,000 N/A -641,825 Met
Jun 2024 is for initial level) 3/
Government Contributions to Productive Safety Net Programme cash transfers (floor, cumulative sum of 9,000 N/A N/A N/A 6,500 N/A 2,370 Not Met
contributions since the beginning of the current fiscal year) 5/
Present value of external new debt (excluding IMF credit) contracted or guaranteed by the general government, N/A N/A N/A 2,000 N/A 248 Met
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 1211 1,225
Official external loans disbursed to the government (US$ millions, cumulative since previous June) 627 638 657
Gross privatization proceeds (US$ millions, cumulative since previous June) 0 0 0

Sources: Ethiopian authorities and IMF staff estimates and projections.

1/Not all quantitative performance criteria and indicative targets were assessed at the First Review given data availability.
2/ Excluding on-lending from the general government.

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

4/ 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.
5/ 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 transition to a flexible exchange rate regime has advanced further. The parallel
market premium over the NBE indicative rate has again stabilized in single digits after a more
volatile period, with a peak of 16 percent on October 22. FX availability has improved, with no
evidence of a macroeconomically significant backlog in FX demand. Many banks have reported
underutilization of available FX, as import demand is constrained by tight Birr liquidity, particularly at
private banks. Bid-offer spreads narrowed, and an interbank FX market has begun to operate, with
growing activity and volumes. The banking sector has continued to close its net open position,
mainly driven by private banks. NBE conducted no FX intervention since August 7, 2024.
International reserves stood at US$3.4 billion at end-October (1.6 months of import coverage).

6. Transitional arrangements to settle legacy letters of credit (LCs) for fuel imports are
being implemented. The Commercial Bank of Ethiopia (CBE) and private banks remain primarily
responsible for settlement of fuel LCs contracted before the exchange rate reform, while NBE is
supporting the clearance of this legacy in 2024/25 up to a maximum amount of US$1.27 billion, with

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NBE’s contribution sold directly to CBE at the prevailing NBE US dollar selling rate. CBE and private
banks are exclusively responsible for settling LCs issued after the exchange rate reform, including
those that mature in 2024/25 and 2025/26. All transactions between and Ethiopian Petroleum
Supply Enterprise (EPSE, an SOE that is the monopoly supplier of fuel for the domestic market) and
banks is conducted at each bank’s respective US dollar selling rate.

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

Source: NBE and IMF Staff.

1
Weighted average of actual transactions across all banks (posted the following morning).
2
Simple average.

7. Trade data for Q1 2024/25 suggests an initial substitution effect response to FX

reform. Preliminary balance of payments (BOP) data for 2023/24 show a current account deficit of
2.9 percent of GDP, unchanged from the previous year, with the trade deficit improving to
7.0 percent of GDP from 8.3 percent as a decline in imports offset lower exports. In Q1 2024/25,

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goods exports rose 81 percent year-on-year, supported by a six-fold increase in gold exports and a
47.8 percent increase in coffee exports. The increase in gold exports reflects previous production
moving to official from informal export channels in response to improved price incentives. The
increase in coffee exports is mainly due to inventory sales and a shift from the domestic to export
markets following exchange rate reform. New investment will be required to sustain growth in these
export sectors as inventory and substitution effects wane. Goods imports showed a slight decline
compared to same period the previous year. Remittances increased by 26 percent year-on-year.

8. Inflation declined in November, following an uptick in September and October,

reflecting the temporary impact of the exchange rate reform, while economic activity remains
resilient. Headline inflation fell to 17 percent in November, from 18-19 percent in September and
October, with both food and non-food inflation declining (Figure 2). Exchange rate passthrough has
so far been lower than anticipated. Gradual adjustment of key administered prices (fuel, fertilizers,
electricity), and price stabilization measures (food, medicines) have helped contain prices. Supply
side conditions (e.g. favorable agricultural output) have also helped ease price pressures. Real GDP
growth for 2023/24 was 8.1 percent, outperforming the expected 6.1 percent growth owing to an
uptick in agriculture and industry (particularly electricity, manufacturing, and mining).

Figure 2. The Federal Democratic Republic of Ethiopia: Growth and Inflation

9. The monetary policy rate has been kept on hold at 15 percent since the introduction of
the new monetary policy framework in July 2024. The first meeting of the Monetary Policy
Committee is expected in late December. Guidance on maximum annual growth in credit to the
private sector has also remained at 14 percent since August 2023. The authorities continue to
conduct liquidity absorbing biweekly full allotment open market operations (OMOs) at the policy
rate, although participation slowed in October and November as banking sector liquidity has
tightened (Figure 3). Some private banks have been using the overnight lending facility.

10. The interbank money market was launched in late October. This constitutes another key
step in building the new monetary policy framework. Twenty (of 31) banks have signed the money

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market code of conduct and can participate. Since its launch, weekly traded volumes have averaged
around 1.4 billion Birr with interest rates averaging around 17 percent.

11. Treasury bill yields are increasing, with improved auction participation. Weighted
average Treasury bill yields rose to an average 14.0 percent in November (from 12.6 percent in
October), still below the monetary policy rate and negative in real terms. Participation was low
during August and September, with an average coverage ratio of 30 percent, but increased to an
average of around 50 percent in October and November. NBE has also improved auction
transparency and is now publishing a full breakdown of auction pricing.

Figure 3. The Federal Democratic Republic of Ethiopia: Monetary Conditions

Volumes
(Billions of Birr)
70

60

50

40

30

20

10

0
Jul-24 Aug-24 Sep-24 Oct-24 Nov-24

Open Market Operation Auctions Treasury Bill Auctions Interbank Market

1
Credit growth numbers exclude the impact of the July 2024 CBE recapitalization.

12. Monetary data indicate tight liquidity conditions. Reserve money has fallen from
6 percent of GDP at end-2022/23 to 3 percent at end-October 2024, with the termination of
monetary financing and cessation of FX surrender to the NBE leading to a sharp decline in reserve
money creation (this will be mitigated by implementation of the supplementary budget—see
below). Along with the cap on credit growth, seasonal demand for credit and bank dividend
payments also constrain liquidity. Although the share of liquid assets in the banking system
(including holdings of government bonds) remains above the prudential limit of 15 percent, banking

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sector liquidity is tight, with the overall ratio of excess reserves to deposits at 0.8 percent (with
considerable dispersion across banks, Figure 3). While end-September broad money growth was in
line with inflation at 19 percent y/y, credit growth (excluding the impact of the CBE recapitalization)
was subdued at 12.9 percent as net claims on government remained contained (16 percent y/y),
private credit growth was flat in real terms (18 percent y/y), and claims on SOEs rose modestly
(3 percent y/y). There are also growing reports of firms and importers curtailing activity due to tight
credit conditions and difficulties in transferring payments between banks.

13. Preliminary tax revenue data for the first four months of FY2024/25 are strong, in line
with the ambitious tax mobilization objectives (Figure 4). Tax revenues were 70 percent higher
than the previous year, reflecting VAT reform, base broadening, removal of exemptions, and revised
excise rates. Following exchange rate reform, tax revenues from imports jumped by 92 percent in
August relative to July, in line with expectations. The QPC on federal government tax collection for
end-September was met with a comfortable margin. A small primary surplus was recorded in the
first quarter of the fiscal year, as key program-supported spending measures were under
preparation as part of the Supplementary Budget.

Figure 4. The Federal Democratic Republic Figure 5. The Federal Democratic Republic of
of Ethiopia: Federal Tax Revenue Ethiopia: Fuel Price Structure
(In billion Birr; cumulative since start of the fiscal year) (In U.S. dollars, converted at official rate)

160 1.6
FY2023/24: July FY2024/25: July Diesel Other costs (Djibouti -
Gasoline
140 1.4
FY2023/24: July-August FY2024/25: July-August Addis Ababa transport,
120 FY2023/24: July-Sept FY2024/25: July-Sept 1.2 margins)
FY2023/24: July-October FY2024/25: July-October
100 1.0 Net fiscal proceeds (fuel
+96%
+37% taxes less claims on
80 0.8 1
stabilization fund)
60 0.6
+97% Djibouti invoice price - CIF
40 0.4

20 0.2

0 0.0 Addis Ababa retail price

Direct taxes Domestic indirect Taxes on imports -0.2
taxes (VAT: G+S, (duties, VAT,
Oct- Oct- Oct- Oct- Oct- Oct-
excises) excises)
22 23 24 22 23 24

Sources: Ethiopian authorities, and IMF staff estimates.

1
Net fiscal proceeds are calculated as the difference between
fuel taxes included in the pump price and EPSE claims on the
Fuel Price Stabilization Fund. Negative values indicate a fuel
subsidy, while positive values indicate that pump prices are
Source: Ethiopian authorities.
above cost recovery levels.

14. The authorities implemented a fuel price increase on October 8, 2024. Prices for
consumers of diesel rose by 8 percent with other fuels rising by 10 percent. The authorities
announced a schedule of quarterly price rises to reach cost recovery over the course of twelve
months, in line with program commitments and their fiscal program. Currently favorable
international fuel prices have eased fiscal pressures stemming from the impact of the exchange rate
reform on costs. Jet fuel prices were fully adjusted to cost recovery (including excise).

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15. Electricity tariffs have been increased following adoption of the four-year tariff plan.
The first quarterly electricity tariff increase was
Figure 6. The Federal Democratic Republic of
implemented in mid-September (SB, end-
Ethiopia: Electricity Tariff1
September), a front-loaded increase of about (Left scale: Index, Dec-2021=100, Right scale: Birr/kWh)
20 percent, initiating regular quarterly
130 10
adjustments for the next four years (Figure 6). 9
120 Weighted average tariff,
The four-year plan puts electricity tariff reforms 110 CPI-deflated 8
7
initiated in 2018 back on track, following the 100 Weighted average, 6
pause in tariff adjustment during 2022–23. 90
nominal, right scale
5
80 4
3
16. The end-September IT on 70
2
government contributions to the targeted 60 1
50 0
social safety nets was missed. The program

Dec-21
Jun-22
Dec-22
Jun-23
Dec-23
Jun-24
Dec-24
Jun-25
Dec-25
Jun-26
Dec-26
Jun-27
Dec-27
Jun-28
includes an increase in budget allocations to
the PSNP from 0.1 to 0.5 percent of GDP. The Sources: Ethiopian authorities and IMF staff estimates.
lower-than-targeted pay out reflected time and 1
Dec-2021 represents last tariff adjustment under the previous
preparation required to expand safety net 4-year tariff adjustment plan (2018–21).

coverage, beneficiary identification, and absorb

significantly increased spending envelope. Benefits for the urban PSNP were increased by
20.7 percent in September. In addition, the authorities have activated the PSNP's shock response
facility, delivering two months of cash benefits, and resources for livelihood enhancement will be
significantly increased, expected to make up the shortfall in execution to date.

17. A Supplementary Budget for 2024/25 in line with program parameters was adopted
on November 26. It 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, including increase in budgetary allocation to the targeted safety nets from 0.1 to
0.5 percent of GDP.

OUTLOOK AND RISKS

18. Growth is expected to slow before strengthening in the medium term (Text Table 2).
Tight financial conditions and uncertainty as economic agents adapt to the new economic
environment will temporarily constrain economic activity with 2024/25 growth projected at
6.6 percent (slightly higher than previously forecast due to continued impact of a large electricity
project coming online). 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. The temporary fiscal spending package will help cushion the
socioeconomic impact of the reforms, reducing the impact on aggregate consumption, while
revenue mobilization will create space for 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.

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19. Inflation is expected to peak around 25 percent in mid to late-2025 and reach single
digits by 2028. Near term projections still reflect passthrough of exchange rate depreciation
through the first quarter of 2025 and seasonal trends, with inflation averaging 1–2 percent m/m in
the first half of the year, before slowing to below 1 percent in the second half. The peak is lower
than anticipated at the first review, reflecting better than expected outcomes through November
2024 as food prices have declined more strongly than usual for the quarter, reflecting a favorable
harvest. While passthrough has been lower than expected, some effects have yet to feed through to
headline inflation due to the gradual adjustment of fuel prices and lags in collection of regional data
for some prices (notably electricity). Overall, data are consistent with the first-round impact of
devaluation on inflation being relatively limited, given the low share in private consumption
expenditure of imports occurring at the official exchange rate prior to reform. Inflation projections
reflect planned fuel and energy price increases. Continued tight financial conditions and the end of
monetary financing of fiscal deficits will help reduce inflation.

20. 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 downside 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 spillovers
from regional conflicts also pose risks to the outlook. On the upside, inflation could be lower than
anticipated if passthrough of the devaluation continues be lower than expected, or if foreign direct
investment picks up faster than expected.

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

1st Rev. Prel. st
1 Rev. Proj. Projections
In percent change, unless otherwise mentioned
GDP at constant prices (at factor cost) 6.3 6.4 7.2 6.1 8.1 6.5 6.6 7.1 7.7 8.0 7.8
1
Consumer prices (period average) 20.2 33.9 32.5 26.6 26.6 25.0 20.7 16.9 10.6 9.5 8.8
1
Consumer prices (end of period) 24.5 34.2 29.3 19.9 19.9 29.4 24.9 12.4 10.1 9.1 8.7

External sector
Exports of goods and services (U.S. dollars, f.o.b.) 10.9 22.8 3.3 5.7 8.1 8.1 7.7 12.6 16.5 16.3 9.7
Imports of goods and services (U.S. dollars, c.i.f.) 2.3 24.9 -1.4 1.8 7.8 8.5 3.7 5.2 10.7 12.2 7.2
In percent of GDP, unless otherwise mentioned
External current account balance, including official transfers -2.8 -4.0 -2.9 -2.4 -2.9 -4.4 -4.4 -3.0 -2.5 -2.1 -2.1

Government finances
Overall fiscal balance, including grants (cash basis) -2.8 -4.2 -2.6 -2.0 -2.0 -1.7 -1.7 -2.0 -1.9 -1.8 -1.6
Total financing (including residuals and excluding net acqusition of assets) 2.8 4.2 2.6 2.0 2.0 1.7 1.7 2.0 1.9 1.8 1.6
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 1.9 1.9 0.8 0.8 1.4 1.6 1.5 1.9
Primary fiscal balance, including grants -2.2 -3.5 -2.0 -1.1 -1.4 -0.6 -0.5 -0.7 -0.8 -0.7 -0.6

Public debt 2 56.1 48.9 40.2 34.7 34.4 43.6 45.6 39.8 36.9 34.4 32.2
Domestic debt 27.1 24.9 22.1 19.3 19.3 14.8 16.3 13.6 12.9 12.5 13.0
External debt (including to the IMF) 29.0 24.0 18.1 15.4 15.1 28.9 29.3 26.2 24.0 21.9 19.2
Gross official reserves (in millions of U.S. dollars) 2,866 1,495 1,026 1429 1,438 3126 3,126 5,291 7,295 10,419 11,707
(months of prospective imports of goods and nonfactor services) 1.5 0.8 0.5 0.7 0.7 1.4 1.4 2.1 2.6 3.5 3.5
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.

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POLICY DISCUSSIONS
A. Monetary Policy

21. Monetary and financial conditions remain tight, while policy transmission through the
new monetary policy framework remains weak. With inflation expected to increase into 2025,
ensuring that exchange rate pass-through and the gradual rise in fuel prices do not generate
persistent second-round effects is a key priority. Treasury bill rates are rising only slowly, and
lending rates are underpinned by very low deposit rates that are also likely to change slowly. The
authorities continue to rely on quantitative instruments—notably the cap on private sector credit
growth—to limit inflation in the near term, which may lead to inefficient allocation of credit and
distort monetary transmission. However, negative effects on real economic activity and the FX
market (scarce Birr liquidity for importers) are reported, while the credit cap does not address
depreciation expectations as long as low interest rates continue to make holding Birr assets
unattractive.

22. Reaching a positive real monetary policy rate is a key step to build the credibility of
the new monetary policy framework and change market expectations for inflation and the
exchange rate. Consistent with the interest-rate based monetary policy framework, the NBE policy
rate should become the key instrument to signal the policy stance. Given significant uncertainty over
the inflation trajectory and the deflationary impact of the tight liquidity conditions, a data-driven
approach is appropriate, and the authorities are working with staff on appropriate forward-looking
measures that consider seasonal factors and likely lags in policy transmission. The authorities retain
their commitment to reaching a positive real policy rate by March 2025 based on an agreed
measure of projected inflation (staff recommend six-month ahead inflation); with at least two MPC
meetings planned before end-March, policy rate increases are likely to be needed to meet the
commitment. Phasing out the cap on growth in credit to the private sector is anticipated by end-
September 2025 (MEFP ¶23). Careful consideration of the sequencing of the phase-out and clear
communication of the authorities’ policy intentions will be important to ensure effective signaling of
the monetary policy stance. Continuing to avoid direct advances to the government remains an
essential condition for low inflation and the success of the new monetary policy framework.

23. Modernization of the monetary policy framework is advancing. Following the first MPC
meeting expected in late December, meetings will be held at least quarterly, with scope to convene
more as needed, following a published calendar with an updated statement on the monetary policy
stance following each meeting (MEFP ¶20). The launch of the interbank money market is important
in improving banks’ asset and liability management, and efforts to increase pre- and post-trade
transparency should continue. As volumes increase, the establishment of a daily money market
reference rate will be an important step in improving monetary transmission, by improving market
transparency, acting as a benchmark for pricing loans and other financial products and laying the
foundations for further financial sector deepening. Other key initiatives include the deployment of a
central securities depository, the review of the reserve requirement framework, update of the

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collateral framework, and improvements in analytical capacity to assess the appropriateness of the
monetary policy stance.

24. Efforts to improve Treasury bill market functioning continue. Following the authorities’
outreach effort to ensure auction rules are well understood, Treasury bill rates have moved closer to
the policy rate. Nevertheless, and reflecting tight liquidity, auctions remain undersubscribed, and
there is a need to significantly increase participation to mobilize domestic resources. The authorities
remain committed to building financial sector capacity, further improving communication, and
expanding the investor base (MEFP ¶24). The exception for CBE making their holdings of Treasury
bills eligible toward meeting their reserve requirement was reduced by 50 percent in December
2024, and will be eliminated by end-2025. The Ministry of Finance is improving issuance planning
with a view to publishing a regular issuance calendar by July 2025. These steps are crucial to prepare
for issuing Treasury bonds at market interest rates in the first half of 2025/26. NBE will also support
these efforts by repealing the directive requiring financial institutions to purchase Treasury bonds at
a fixed rate of 9 percent (June 2025, SB).

B. Exchange Rate

25. The authorities have taken several measures to support FX market functioning. The
requirement for exporters to surrender retained FX after one-month was eliminated—a key staff
recommendation that substantially eases uncertainty for exporters and reduces incentives to avoid
the official market. NBE granted licenses for twelve non-bank FX bureaus to operate in the cash FX
market (creating a new market segment and enhancing competition), with five of these bureaus
already operating. The guidance on FX fees and commissions has been revised, allowing banks to
exclude some fees from their posted prices in line with practice internationally, noting an
expectation that bid-offer spreads should generally not exceed 2 percent, and requiring transparent
disclosure of all FX-related fees and commissions. This makes the NBE's indicative rate (the weighted
average rate of banks' FX transactions), more comparable to the parallel market rate, which does not
reflect fees and commissions. In line with the FX directive, the NBE issued a letter to banks on the
settlement of dividends that were accumulated before the FX reform, clarifying that banks should
distribute such payments equally over a period of 18 months. The allowance for the importation of
certain commercial goods through the Franco Valuta import system has been ended, mainly to
prevent abuse of the system by sourcing FX from the parallel market, especially considering that FX
availability at banks has significantly improved.

26. The NBE’s policy efforts to improve market efficiency and encourage a strong FX
supply response continue:
• NBE is strengthening FX market monitoring and enforcement of the FX directive. A
dedicated inspection team for the commercial banks was established and the first
consolidated on-site inspection report has been finalized. An internal manual is being
implemented to strengthen both off-and on-site inspections with special focus on ensuring
that banks are complying with the Foreign Exchange Market Operation Code of Conduct.

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NBE is offering guidance to improve understanding of the FX directive, including on its

website.
• With technical support from staff, an FX market survey covering banks, importers, and
exporters to identify impediments to FX market efficiency and deepening is being prepared.
• By March 2025, NBE will review the maximum amount allowed for advance payment of
imports that does not require importers to submit a foreign bank guarantee.
• With IMF technical assistance, NBE will review the calculation methodology for the daily
indicative exchange rate with a view to including all interbank FX transactions in the
calculation and begin publishing regular data on interbank market transactions by end-
March 2025. In addition, NBE will begin work with the commercial banks and stakeholders to
adopt an FX trading platform and finalize the RTGS payment system to enable the
settlement of interbank FX transactions domestically to support FX market liquidity and
inter-bank FX market development.
• NBE will work together with banks to establish service standards for opening LCs, including
processing time and margin requirement, by end-February 2025.
• NBE will assist in bringing overseas money transfer operators into the official market by
facilitating contacts with banks, with due regard to know-your-customer and financial
integrity considerations. In collaboration with banks, an information campaign to attract
remittances will be extended to countries with sizeable Ethiopian diaspora populations.

27. Efforts to further liberalize current account transactions are ongoing. The AVIII mission
identified the following, longstanding, measures which give rise to six exchange restrictions and one
MCP inconsistent with Article VIII, Section 2(a) of the IMF’s Articles of Agreement: (i) exchange
restriction arising from the tax clearance certificate requirement for repatriation of dividend and
other investment income; (ii) exchange restriction arising from the requirement to provide a
clearance certificate from the NBE to obtain import permit; (iii) exchange restriction arising from the
imposition of hard ceilings on access to and use of FX for travel purposes; (iv) exchange restriction
arising from the prohibition of access to and use of FX for the purposes of cross-border payment of
moderate family remittances; (v) exchange restriction arising from the restriction imposed on the
access to and use of FX for the repatriation of backlog dividends (accumulated dividend outstanding
as of July 29th, 2024); and (vi) exchange restriction and MCP arising from the commission of 2.5
percent levied on the NBE’s exchange transactions with the government for external payments.

28. NBE will remove four exchange restrictions identified in the IMF Article VIII
assessment within the program period. A specific timeline for removal of (i) the imposition of
hard ceilings on access to and use of FX for travel purposes and (ii) the prohibition of access to and
use of FX for the purposes of cross-border payment of moderate family remittances will be based
on a study completed prior to the third ECF review. The exchange restriction on the settlement of
backlogged dividends will be phased out over 18 months, as outlined in an NBE letter to banks
issued on September 30, 2024. The economic impacts of temporarily retaining the three measures
are expected to be limited. The demand for FX from travelers exceeding the specified limits, along

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with the demand for outward remittances for family living expenses, is not macroeconomically
significant. The estimated backlog of dividends is small, as much had already been settled through
unofficial channels or reinvested. The NBE’s application of a 2.5 percent commission on the one-day
lagged exchange rate for certain government transaction gave rise to multiple currency practices.
The authorities are committed to taking steps to eliminate the commission within the program
period. The adjustment and eventual elimination of the 2.5 percent commission on most FX
transactions will be carefully aligned with an impact assessment determined as part of a
comprehensive NBE capital adequacy study. For the two remaining exchange restrictions—the
requirement to provide a tax clearance certificate for repatriation of dividends and other investment
income, and the requirement to provide a clearance certificate from the NBE to obtain an import
permit—NBE will collaborate with the other affected public authorities to explore solutions that do
not give rise to exchange restrictions. Staff encourages the authorities to remove all longstanding
Article VIII exchange restrictions.

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

C. Fiscal Policy and SOE Reform

30. Preparation of the next phase of the revenue mobilization reforms is advancing.
Revenue reforms are guided by the National Medium-Term Revenue Strategy (NMTRS) adopted in
September. The excise stamp, part of the current year’s revenue package, is progressing to full
implementation with rollout of the digital track and tracing component expected by April 2025. The
next phase of tax policy reforms centers on tax expenditures and income tax with implementation
and policy yields to start in FY2025/26 (MEFP ¶34). The authorities are finalizing a directive to
streamline and eliminate tax exemptions for imported intermediate inputs for new local and foreign
investments. Tax policy assessments are advancing as planned with development partner support,
prioritizing closing gaps in the corporate income tax regime, and streamlining the presumptive tax
system for small and unincorporated businesses (the latter will be revenue neutral, with gains via
efficiency and fairness). Revenue raising motor vehicle ownership taxes will proceed in 2025/26 as
well. Updating minimum exemptions for personal income tax is being considered, focusing on
equity and efficiency while minimizing revenue losses. The potential impact on poverty is largely
addressed through the recent public wage increases. The authorities are analyzing the 2024 TADAT
findings to update tax administration, with the key objective of developing and implementing an
integrated tax administration IT system within the program period. Revenue administration efforts
include strengthening taxpayer registration, e-filing, e-payment, and e-invoicing platforms,
compliance risk management, and tax audit efficiency. Realizing NMTRS targets will require
strengthening policy coordination and implementation capabilities, modernizing IT infrastructure,
and enhancing human resources.

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31. Current spending plans are in line with program objectives of mitigating socio-
economic impact of exchange rate reform and rebuilding fiscal space. Unwinding untargeted
fuel subsidies (inclusive of statutory taxes on fuel) by January 2026 will hinge on sustaining quarterly
pump price adjustments, as planned by the authorities, including timely price adjustment as the
actual fuel cost structure evolves in line with import prices and costs. The subsidy budget for
fertilizer was increased from 0.2 to 0.5 percent of GDP as planned, which is expected to provide a
price subsidy of about 30 percent of the full cost (import and distribution). This requires partial pass-
through of the cost increase to farmers, including to cover the fiscal impact of exchange rate reform
to the 2023/24 subsidy (0.1 percent of GDP). The salary increases for public sector employees,
heavily tilted to the lowest wage earners, remedies real wage erosion that had left some public
sector workers below the poverty line. The Supplementary Budget includes an additional
contingency for social spending (0.2 percent of GDP) that the authorities may activate if tax revenue
overperforms relative to the baseline.

32. The authorities plan to raise safety nets spending and expect budget outlays to be in
line with program targets. Benefits will be adjusted in January 2025 for the rural safety nets
program, which is much larger than the urban program where benefits were raised in September
2024. The 2024/25 quarterly Productive Safety Net Program (PSNP) disbursements plans foresee
budget allocations in line with program targets, although there is a risk of further delay as the
authorities focus on ensuring efficient and targeted increases in coverage.

33. Fiscal transparency and accountability reforms are being strengthened. Program
conditionality includes starting to publish mid-year reviews of the Federal Government budget and
quarterly budget execution reports (SB, April 2025) as well as issuance of a circular mandating
remittance of fuel taxes to the federal budget from December 2025 (SB, June 2025). To strengthen
budget controls and public investment management practices, road maintenance funding will shift
from off-budget earmarking of part of the VAT collected on fuel sales to on-budget allocations (SB,
June 2025). The introduction of a public sector obligation (PSO) framework for SOEs, supported by
the World Bank, will be an important step towards comprehensive disclosure of quasi-fiscal activities
and managing fiscal risks.

34. SOE sector reforms are proceeding as expected. Building on the progress in
implementing IFRS in its SOE portfolio, Ethiopia Investment Holdings (EIH) is preparing consolidated
financial statements for FY2022/23; audited statements are expected to be completed by February
2025. The authorities are consolidating the SOE portfolio under EIH. Public Enterprises Holding and
Administration Agency (PEHAA), within the Ministry of Finance, will focus on SOE policy
development and the Ministry’s oversight functions. In the electricity sector, the multi-year electricity
tariff plan is expected to take power utilities to positive net income within the program period.
Additional tariff increases (scope for which is provided for under the regulatory tariff framework)
could be needed to further strengthen viability and investment in the sector.

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D. Debt

35. Ethiopia’s debt continues to be unsustainable and in distress under the updated pre-
restructuring DSA. There are protracted breaches in exports-related debt vulnerability indicators, of
duration and magnitude comparable to the program approval DSA. The debt relief envelope
required to meet program financing needs and reach moderate risk of debt distress by the end of
the program remains broadly unchanged. Updates include:
• BOP forecasts are moderately revised to reflect 2023/24 outturns and preliminary data for
Q1 2024/25. Near-term exports forecasts are slightly stronger reflecting the pick-up in gold
exports as producers switch from informal to official channels and coffee exporters draw on
inventory. As continued growth will require new investment, and previous projections
already include a substantial increase in exports, medium-term projections are unchanged.
Although imports in 2023/24 exceeded projections, primarily due to public sector imports,
the near-term import forecast remains largely unchanged to reflect the subdued import
levels observed in Q1 2024/25. Medium-term import projections are lower, mainly due to
lower international fuel prices.
• A revised debt service schedule for end-June 2024 outstanding debt is used.

36. The Official Creditor Committee (OCC) is on track to reach agreement with the
authorities on the key terms for a debt treatment by the second review. The authorities shared
an indicative proposal on a possible debt treatment with the OCC on October 16, 2024. The co-
chairs offered the authorities reassurance on October 23 that “sufficient progress towards an
agreement in principle by the time of the second review” is being made. An OCC meeting took place
on December 4 to review the perimeter of the debt treatment and the cut-off date, and to consider
the authorities’ request for an extension of the debt service standstill until the Memorandum of
Understanding (MOU) on debt treatment is signed. Further discussion on the potential terms for the
debt treatment are expected later in December or early in January such that an agreement in
principle would be likely to follow soon after. Building on agreement in principle on the main
parameters of a treatment, an agreed MOU with official creditors would be expected by the third
review.

37. The authorities have engaged actively with Eurobond holders on the need for debt
restructuring. The authorities intend any treatment to be on comparable terms to that agreed with
official creditors. Following a Global Investor Call on October 1, 2024, which provided an update on
recent economic developments and included an illustrative debt treatment option, the authorities
met the Eurobond creditor committee (representing more than 40 percent of principal) during the
Annual Meetings in October. Three coupon payments and the principal that came due on December
11, 2024, have been missed, totaling US$1,099 million.

38. The authorities continue their efforts to limit the accumulation of new debt
vulnerabilities. No new non-concessional loans have been contracted. Discussions with prospective
creditors regarding the Koysha project loan are currently underway; any new non-concessional
lending for this project is exempt from the zero-limit on new non-concessional borrowing. The pace

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of contracting new public and publicly guaranteed (PPG) concessional debt aligns with the
established ceiling on the present value of new external borrowing.

E. Financial Sector

39. Continued strengthening of prudential oversight is essential as the financial sector

adapts to the changing economic and competitive environment. The authorities continue to
work toward upgrading the capital framework to Basel II, focusing on Pillar 1 requirements and
developing a risk-based supervisory framework with the support of IMF and World Bank technical
assistance (MEFP ¶53). With the recent revision of the asset classification and provisioning directive
to align with international practices, close monitoring of NPLs, along with ongoing efforts to
develop a corrective action framework and bank resolution regime will be important (MEFP ¶54). The
directive prescribes a more forward-looking approach to provisioning, sets stricter criteria for loan
restructuring, and removes constraints on classifying exposures toward SOEs, ultimately providing a
clearer picture of the health of the banking sector. NPLs rose to 5.5 percent of total loans at end-
September from 3.9 percent prior to the implementation of the new directive in June (Table 5).

40. Reforms to ensure that CBE can operate as a commercially oriented bank are ongoing,
with the support of the World Bank Financial Sector Strengthening Project (FSSP). Building on
the recapitalization in July 2024, CBE are developing operational and governance reforms (MEFP ¶
51). A new ownership policy and commercial mandate are being finalized and reviewed by EIH, and
the development of an updated corporate governance framework is underway. An asset quality
review is planned. Under the FSSP, the authorities have committed to implementing a strategic plan
for Development Bank of Ethiopia (DBE) by end-2025, including a revised business model focused
on wholesale lending and a market-based funding strategy. Mandatory commercial bank purchases
of DBE bonds will be phased out by December 2025 (MEFP ¶46).

41. Rapid progress in reaching full compliance with NOP regulations is reducing a key
financial stability risk. Following the FX reform, most private banks have already reached
compliance with the NOP regulation, well ahead of the June 2025 benchmark established by the
NBE and the overall banking sector position has narrowed markedly. It is expected that CBE’s short
NOP, arising from legacy fuel LC openings on behalf of EPSE, will be substantially reduced as the LCs
are paid down, and following disbursements under the FSSP. The authorities plan to strengthen the
measurement of NOPs and enhance monitoring and enforcement in coming months. A revision of
the NOP prudential regulation is planned, with the support of IMF technical assistance (MEFP ¶17).

42. Development of capital markets will help improve access to finance and the allocation
of credit. Building on the 2021 Capital Market Proclamation, the Ethiopian Securities Exchange is
expected to become operational in January 2025. An initial public offering for up to 10 percent of
Ethio Telecom is ongoing, expected to close at end-January 2025.

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F. Safeguards and Governance

43. An update safeguards assessment is substantially complete. Progress in implementing

recommendations from the 2020 assessment has been slow, but positive developments include
adoption of an external auditor selection and rotation policy, the appointment in November 2024 of
a new external auditor for five years, and resumption of publication of the audited financial
statements. The NBE however continues to face capacity constraints and recommendations include
the need to strengthen proficiencies in financial reporting, internal audit, and risk management, and
to establish stronger controls to ensure accuracy of program monetary data. The 2022/23 audited
financial statements are expected to be finalized by the new auditor and published by end-March
2025 (modified SB).

44. Draft amendments to the NBE Proclamation submitted to parliament modernize NBE’s
mandate, functions, and powers but depart from leading practices with respect to governance
and autonomy. The draft NBE Proclamation was submitted to Parliament in July 2024, and
legislative approval is expected in December 2024. The draft includes:
• Strong improvements in critical areas: (i) introducing clear and hierarchical objectives;
(ii) limiting monetary financing to the government; (iii) clarifying Board oversight
responsibilities and the respective roles of executive management and the Board;
(iv) enhancing collegial decision making at the executive level; (v) establishing resolution and
lender of last resort functions; (vi) setting out prohibited activities; and (vii) enhancing
provisions related to internal and external audits. In addition, disallowing emergency
liquidity assistance without collateral is expected to be introduced at the parliamentary
hearing stage.
• Important gaps that currently remain include: (i) the lack of prohibition of active government
officials (including ministers) from serving on the NBE Board; (ii) Board composition with a
majority of government officials that hold non-executive member positions, and (iii) the lack
of a double-veto procedure for the appointment of the Governor, Vice-Governors, and
Board members.

45. NBE reports constructive engagement with the parliament, while the mission
reiterated the importance of addressing the remaining gaps especially on central bank
autonomy. There is support for significant modernization of NBE’s legal framework. The authorities
note that the degree of independence in the draft law, though more limited than established in
leading practice, will secure significant progress in the Ethiopian context and compared to the
current law. They also highlighted that the degree of independence recommended by the IMF was
not enjoyed by any public institution in Ethiopia and is alien to their legal traditions. Staff reiterated
the importance of addressing the remaining gaps, and that the structural benchmark was unlikely to
be met if concerns on central bank independence could not be addressed. Staff will discuss
additional measures to strengthen NBE autonomy as needed, including potential conditionality, at
the third review.

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46. The authorities are preparing for the upcoming Eastern and Southern African Anti-
Money Laundering Group mutual evaluation. They have initiated a technical assistance program
on their anti-money laundering and combating the financing of terrorism (AML/CFT) framework.
Potential follow-up TA under discussion could support development of an action plan to improve
generation and use of financial intelligence for the financial intelligence unit and AML/CFT
supervision of financial institutions and designated non-financial businesses and professions. The
strengthening of the AML/CT supervisory framework is critical in light of the authorities’ efforts to
develop and deepen the financial markets in Ethiopia. Staff will monitor the progress of the
AML/CFT National Risk Assessment and Action Plan.

PROGRAM MODALITIES
47. 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 in July 2025. With this commitment, there are firm commitments for the next twelve months
and good prospects for financing the remainder of the program. Progress towards debt
restructuring through the Credible Official Creditor Process under the Common Framework is
consistent with Ethiopia reaching a moderate rate of debt distress by the end of the program. The
illustrative post-restructuring DSA scenario based on the indicative proposal shared by the
authorities with the OCC would be consistent with this goal (Figure 7). 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 2).

Figure 7. The Federal Democratic Republic of Ethiopia: The Authorities’ Illustrative

Debt Restructuring Scenario-Indicators of PPG Debt, 2025/26–2034/35
PV of Debt-to-GDP Ratio PV of Debt-to-Export Ratio
35 250

30
200
25

20 150

15
100
10
50
5
Most extreme shock: One-time depreciation Most extreme shock: Exports
0 0
2025 2027 2029 2031 2033 2035 2025 2027 2029 2031 2033 2035

Debt Service-to-Exports Ratio Debt Service-to-Revenue Ratio

ebt se ce to e e ue at o
18
25
16
14 20
12
10 15
8
6 10

4
5
2
Most extreme shock: Exports Most extreme shock: One-time depreciation
0
0
2025 2027 2029 2031 2033 2035
2025 2027 2029 2031 2033 2035

Baseline Historical scenario Most extreme shock 1/ Threshold

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48. Program monitoring will move from quarterly to semi-annual reviews at the third
review, as planned. The third review will be based on end-December 2024 QPCs and ITs (Table 9)
and SBs (Table 10). An update to the TMU for future reviews has been implemented: the impact of
the CBE recapitalization will be excluded from the indicative target for gross claims on public
enterprises. For NIR, the TMU has been clarified to reflect that government deposits are not
considered contractually binding short-term FX liabilities of NBE. Staff support resetting the SB on
finalizing the NBE audit from end-January 2025 to end-March 2025 to allow time for completion.
Staff propose a new structural benchmark to discontinue earmarking a portion of fuel VAT for the
road fund and allocate federal government funding through the budget for end-June 2025.

49. Ethiopia’s capacity to repay the Fund 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
18.6 percent of exports in 2026/27, 68.4 percent of FX reserves in 2024/25, and 1.9 percent of GDP in
2026/27 and 2027/28. Debt service to the Fund is projected to peak at 2.1 percent of exports in
2024/25, 7.4 percent of FX reserves in 2024/25, and 0.2 percent of GDP in 2024/25 (as well as
between 2031/32 and 2033/34). 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.

50. Enterprise risks to the Fund remain significant, mitigated by program design and the
implementation record. Strong ownership, political commitment, and reform outcomes so far have
mitigated key risks. However, uncertainty will persist due to the complexity of the reform agenda,
data limitations, and the fragile socio-economic environment, representing an important continuous
source of risks. The quarterly review structure for the first two reviews has proved useful to monitor
developments closely, help keep the program on course, without large changes in policy measures
or rephasing of access. Policy recalibration so far reflects close engagement and the authorities’ pro-
active approach to consultation. Staff views the forthcoming shift to a semi-annual review structure
in line with the originally planned timeline as appropriate from the enterprise risk perspective (see
IMF Country Report No. 2024/253 for more detail on program design considerations).

51. The authorities have indicated that they will request to use Fund disbursements for
budget support in 2025/26 to accommodate funding pressures. They do not anticipate higher
deficits but are concerned about ensuring adequate financing given uncertain prospects in the
domestic debt market and weak demand for Treasury bills so far, this fiscal year. Staff will review the
request at the third review, considering budget preparations, developments in the Treasury bill
market, and the authorities’ resource mobilization efforts. A fiscal safeguards review would be
needed if further budget support is provided (required under exceptional access with at least
25 percent of IMF financing expected to be directed to financing of the budget).

52. In line with Fund policy on Poverty Reduction Strategies, the authorities have
provided their Poverty Reduction and Growth Strategy (PRGS), based on their 10-year
Development Plan (DP) and HGER 2.0. The 10-year DP aims to achieve sustained, high growth

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and reduce poverty from a post-COVID rate of over 30 percent in 2020/21 to 7 percent in 2029/30.
The plan became effective in July 2020 and covers 2020/21-2029/30. Specific policy directions for
the 10-year DP are outlined in the HGER 2.0. Staff assess that these documents would fulfill the
PRGS requirements: they were developed in consultation with multiple stakeholders and identify
priorities that are consistent with program objectives, including promoting private sector led growth
and enhance social safety nets (Box 1). The World Bank has provided a letter of assessment for the
PRGS.

Box 1. Poverty Reduction and Growth Strategy

Ethiopia’s 10-year Development Plan 2021–2030 (10YDP) serves as its Poverty Reduction and Growth
Strategy (PRGS) and is well-aligned with the objectives of the ECF.
The 10YDP was adopted by Ethiopia’s Parliament in 2021. The plan covers 2020/21-2029/30 and focuses
on achieving a growth rate of 10 percent annually to reduce the national poverty rate from 19 percent in
2020/21 (as estimated at the time) to 7 percent in 2029/30. To achieve this growth, the plan stressed: (i)
transition to a more market-based economic system with greater participation by the private sector; (ii)
maintaining macroeconomic stability; (iii) ensuring structural transformation by promoting productivity and
competitiveness; (iv) provision of high quality and accessible basic social services and infrastructure; (v)
ensuring a well-qualified and independent civil service; and (vi) building strong and inclusive institutions to
ensure peace, access to justice, rule of law, and human rights.
Specific policy directions for the 10YDP are outlined in the HGER, which also underpins ECF reform
program, ensuring that the PRGS and program objectives are well aligned. The HGER aims to address
macroeconomic imbalances, restore external debt sustainability, and lay the foundation for high, private
sector-led growth. Thus, key policies supported by the ECF arrangement contribute to the DP objectives of
sustained growth and poverty reduction. FX reform (supported by increased social spending to protect
vulnerable households) helps address a key relative price distortion holding back development.
Development of the monetary policy framework, ending monetary financing, and gradually removing
financial repression will help reduce inflation, improve credit allocation, and encourage domestic savings.
Rebuilding revenues and anchoring debt sustainability will help mobilize resources to meet long-term
development needs. SOE and CBE reforms are helping address key fiscal and financial vulnerabilities to
strengthen long-term growth prospects. Finally, improving transparency and governance will also help
promote a sustainable economy.

53. As the OCC is an adequately representative forum and includes Paris Club creditors,
arrears to other official bilateral creditors are deemed away under the Lending into Official
Arrears policy. In addition, Ethiopia has pre-HIPC era arrears to Libya, Russia, and the former
Republic of Yugoslavia, totaling about US$525 million as of June 2024, which are deemed away due
to a representative Paris Club agreement under HIPC. There are about US$32 million in external
arrears to commercial creditors from the former Czechoslovakia, India, Italy, Bulgaria and the former
Yugoslavia, all pre-dating the 1990s.

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

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in creditor-debtor relations. The authorities continue to make good faith efforts to resolve arrears to
official bilateral creditors and external commercial creditors.

Box 2. Assessment of Exceptional Access Criteria and Policy Safeguards on High Combined
Credit
The ECF arrangement for Ethiopia includes exceptional access under the Poverty Reduction and Growth
Trust (PRGT) and triggers the Policy Safeguards on High Combined Credit (PS-HCC) due to Ethiopia’s
outstanding obligations to the General Resources Account (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 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 Common
Framework, 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
low reserves and some reports of FX shortages, 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
Common Framework 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.
• Criterion 3 (income criterion for presumed blending): At about 74 percent of the IDA Operational
Cut-off at the time of the program request, 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): Frontloaded policy adjustment and the
authorities’ commitment to program implementation provide a sufficient basis for a favorable
assessment of a strong prospect of success. The implementation of policies early in the program
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
55. The authorities are making strong progress under the program. Measures taken are
successfully addressing macroeconomic imbalances, and the economy has proven resilient so far.
Exchange rate reform has had a relatively limited impact on inflation due to low exchange rate pass-
through, tight monetary and financial conditions, and policy support to smooth administered price
adjustment. All quantitative performance criteria and all but one indicative targets for end-
September 2024 were met. The authorities have taken steps to further strengthen FX supply and
market efficiency, maintain tight monetary and financial conditions, mobilize domestic resources,
raise social spending, and restore debt sustainability.

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56. Conditions for economic growth in the period ahead are promising. The positive
medium-term outlook hinges on continued implementation of program-supported macroeconomic
reforms, the advancement of structural reforms that promote private sector development, and
implementation of the external debt restructuring.

57. Maintaining overall tight monetary and financial conditions are key to managing
inflation and exchange rate expectations. Liquidity conditions are affecting economic activity, and
while they are expected to ease in the months ahead as the supplementary budget is executed,
finding the appropriate policy stance to balance continued downward pressure on inflation with real
sector developments should be data dependent and subject to frequent review, including by the
Monetary Policy Committee. Raising the monetary policy rate to positive real levels by end-March
2025 is important to signaling the monetary policy stance and building the credibility in the new
monetary policy framework, as well as correcting a key relative price distortion impeding efficient
investment and asset allocation decisions. With inflation expected to increase in 2025, ensuring
exchange rate and fuel price reforms do not generate second round effects is a priority. The phase-
out of the cap on credit growth should be carefully sequenced with policy rate changes and
communicated transparently. Continuing to avoid direct advances to the government is essential to
achieve low and stable inflation and the success of the new monetary policy framework. Further
efforts to improve Treasury bill market functioning and boost participation will help mobilize
domestic resources.

58. Steady improvements in FX market functioning and rising FX supply are encouraging.
The removal of surrender requirements for exporters on retained FX is a welcome step to reduce
uncertainty and incentives to avoid the official market. Continued efforts to strengthen monitoring
and enforcement of the new FX directive, identify further market impediments through an FX survey,
and improve and publish data on the indicative exchange rate and interbank market transactions
will further enhance market functioning. FX intervention to manage disorderly market conditions has
not been needed, a welcome development, as is the authorities’ continued commitment to clear
communication of their policy intentions should intervention become necessary. Staff welcomes
steady implementation of transitional arrangements to settle legacy fuel LCs (pre-exchange reform)
and new LCs opened in 2024/25, as well as the authorities’ commitment to fully market-based
financing starting from LCs opened in 2025/26. Continued efforts to liberalize current account
transactions, including by removing longstanding Article VIII exchange restrictions will also be
important.

59. The supplementary budget maintains fiscal targets in line with program objectives.
Staff urge the authorities to prioritize efforts to expand targeted safety net programs to ensure that
vulnerable households are protected while using public resources efficiently. Unwinding fuel
subsidies in line with program commitments will require sustained efforts to bring fuel prices at the
pump to full cost recovery, which is also needed to realize program’s domestic resource
mobilization targets and rebuild fiscal buffers. Continued prudent spending controls, consistent with
revenue performance, are warranted.

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60. The authorities’ revenue mobilization strategy provides a sound policy framework to
durably raise revenues, broaden the tax base, and streamline the tax system. The
implementation of the VAT and excise tax reforms continues as planned and authorities are working
on the next phase of tax policy reforms focused on tax expenditures, closing gaps in corporate
income tax regime, and increasing revenue from property ownership.

61. SOE sector reforms are progressing well. EIH is preparing consolidated financial
statements for its SOE portfolio, which will provide a welcome and transparent overview of the
sector. The consolidation of management of the states’ interests in SOEs under EIH as a
commercially oriented shareholder, should help improve cost efficiency, corporate governance, and
transparency for the SOE sector. In the electricity sector, the first steps have been taken in the
multi-year electricity tariff plan that is expected to take power utilities to positive net income within
the program period.

62. The NBE has competitively selected and appointed a suitably qualified external auditor
for a five-year term. The 2022/23 audited financial statements are expected to be finalized by the
new auditor and published by end-March 2025. Staff called for further progress on other safeguards
recommendations.

63. Staff welcomed authorities’ commitment to a significant modernization of NBE’s legal

framework. The draft NBE law represents a significant advance on the existing legal framework in
most respects and is a substantial achievement as it stands. Staff nonetheless reiterated the
importance of addressing the remaining gaps with respect to governance and autonomy. A final
assessment of compliance with the structural benchmark will be made when NBE’s input to the
parliamentary process is complete.

64. Steps to securing a debt treatment and restoring debt sustainability continue. Staff
welcome that sufficient progress is being made by the Official Creditor Committee (as a Credible
Official Creditor Process) toward an agreement in principle on a debt treatment consistent with
program objectives. Good faith efforts continue with Eurobond holders and other external
commercial creditors. The authorities continue to avoid non-concessional borrowing, with the
exception of the financing needed for the Koysha dam project, and carefully evaluate new
concessional debt. Plans to strengthen debt management are ongoing, with World Bank and IMF
technical support.

65. Financial sector reforms will strengthen financial sector stability. Modernization of the
regulatory framework for banks and continued strengthening of supervision should be
complemented by close monitoring of non-performing loans and introduction of a corrective action
framework and bank resolution regime. Governance and operational reforms for CBE supported by
the World Bank’s FSSP will help ensure it can operate as a commercially oriented institution, with
clearly defined public service obligations. Significant progress has been made to ensure banks are in
full compliance with net open position regulations, addressing a key financial stability risk, and will
be further enhanced by plans to strengthen monitoring and enforcement.

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66. Staff support the completion of the second review under the ECF arrangement. All
quantitative performance criteria for end-September have been met. The authorities present a
strong set of policies and structural reform measures in the attached LOI and MEFP, demonstrating
their commitment to achieving the objectives of the Fund-supported program. Given the
restructuring remains on track, staff supports the completion of the financing assurances review.
Staff also support resetting the SB on finalizing the NBE audit from end-January 2025 to end-March
2025 to allow time for completion.

67. Staff supports the approval of the three exchange restrictions currently in place for
BOP reasons: the imposition of hard ceilings on access to and use of FX for travel purposes,
the prohibition of access to and use of FX for the purposes of cross-border payment of
moderate family remittances, and the exchange restriction on backlog dividends, while the
authorities are endeavoring to address the BOP problems. The authorities have requested
approval for these restrictions on the grounds that they are temporary, expected to be lifted
throughout the program period, and do not create an unfair competitive advantage for any member
or discriminate among members. Additionally, staff supports the authorities' plan to explore
solutions to the remaining two exchange restrictions.

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

2020/21–2028/29

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

Actual Prel. 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 8.1 6.6 7.1 7.7 8.0 7.8
GDP deflator 21.8 34.7 32.9 25.5 21.7 18.5 12.3 11.5 10.2
Consumer prices (period average) 1 20.2 33.9 32.5 26.6 20.7 16.9 10.6 9.5 8.8
Consumer prices (end period) 1 24.5 34.2 29.3 19.9 24.9 12.4 10.1 9.1 8.7

External sector
Exports of goods and services (f.o.b.) 10.9 22.8 3.3 8.1 7.7 12.6 16.5 16.3 9.7
Imports of goods and services (c.i.f.) 2.3 24.9 -1.4 7.8 3.7 5.2 10.7 12.2 7.2
Export volume (goods) 12.6 2.5 -17.3 -1.2 12.1 6.0 6.0 4.0 2.9
Export volume (goods and services) 3.2 11.0 -3.2 1.7 0.0 5.2 3.2 1.2 0.1
Import price index (percent change) 3.7 16.5 4.3 -3.7 -0.8 -2.3 -1.5 -1.3 -1.3
Terms of trade (goods and services, deterioration – ) 3.7 -5.0 2.2 10.3 8.6 9.6 14.7 16.5 11.1
Nominal effective exchange rate (end of period, depreciation –) -24.1 -8.6 6.9 -1.4 … … … … …
Real effective exchange rate (end of period, depreciation –) -10.0 10.3 27.9 12.6 … … … … …

Money and credit

2
Claims on nongovernment 21.9 18.9 24.1 9.7 -24.0 42.2 42.6 25.6 23.2
Broad money 29.9 27.2 26.6 14.1 26.1 29.3 29.4 21.3 20.4
Base money 7.2 37.2 32.0 -1.1 26.3 24.0 24.7 20.1 19.4
Velocity (GDP/broad money) 3.22 3.59 4.02 4.74 4.96 4.89 4.60 4.58 4.53

In percent of GDP, unless otherwise mentioned

Financial balances3
Gross domestic savings 18.9 15.2 14.8 14.1 9.8 14.5 16.9 17.7 17.4
Public savings 1.6 -0.4 1.1 1.7 1.5 2.6 3.2 3.4 3.6
Private savings 17.4 15.6 13.7 12.4 8.3 11.9 13.7 14.3 13.8
Gross domestic investment 28.0 25.3 22.2 20.3 19.7 23.4 25.0 25.4 24.5
Public investment 7.5 6.4 5.6 4.3 2.4 5.8 6.4 6.6 6.2
Private investment 20.5 19.0 16.6 16.0 17.3 17.6 18.7 18.8 18.3
Resource gap -9.1 -10.1 -7.4 -6.2 -9.9 -8.9 -8.1 -7.6 -7.0
External current account balance, including official transfers -2.8 -4.0 -2.9 -2.9 -4.4 -3.0 -2.5 -2.1 -2.1

Government finances
Revenue 10.2 8.1 7.9 7.3 8.5 9.8 10.8 11.2 11.4
Tax revenue 9.0 7.1 6.8 6.2 7.4 8.6 9.6 10.1 10.3
Nontax revenue 1.3 1.0 1.0 1.1 1.2 1.2 1.2 1.2 1.2
External grants 0.8 0.4 0.4 0.3 1.4 0.6 0.5 0.4 0.4
Expenditure and net lending 13.8 12.7 10.8 9.5 11.6 12.3 13.2 13.4 13.4
Fiscal balance, including grants (cash basis) -2.8 -4.2 -2.6 -2.0 -1.7 -2.0 -1.9 -1.7 -1.5
Total financing (including residuals and excluding privatization) 2.8 4.2 2.6 2.0 1.7 2.0 1.9 1.7 1.5
External financing 0.7 0.1 0.3 0.2 1.3 -0.2 0.3 0.3 -0.4
Domestic financing 2.1 4.3 2.5 1.9 0.8 1.4 1.6 1.5 1.9

4
Public debt 56.1 48.9 40.2 34.4 45.6 39.8 36.9 34.4 32.2
Domestic debt 27.1 24.9 22.1 19.3 16.3 13.6 12.9 12.5 13.0
External debt (including to the IMF) 29.0 24.0 18.1 15.1 29.3 26.2 24.0 21.9 19.2
Overall balance of payments (in millions of U.S. dollars) -41 -2,639 -809 336 -909 309 351 817 1,326
Gross official reserves (in millions of U.S. dollars) 2,866 1,495 1,026 1,438 3,126 5,291 7,295 10,419 11,707
(months of prospective imports of goods and nonfactor services) 1.5 0.8 0.5 0.7 1.4 2.1 2.6 3.5 3.5
GDP at current market prices (billions of birr) 4,341 6,157 8,723 11,752 15,501 19,765 24,071 29,085 34,591.7
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.

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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 Prel. Proj. Projections

Total revenue and grants 478,888 525,736 717,149 887,178 1,541,530 2,042,284 2,718,118 3,394,014 4,101,996
Revenue 444,583 499,043 685,021 854,146 1,324,563 1,931,747 2,600,099 3,268,839 3,953,972
Tax revenue 388,763 436,753 595,135 723,768 1,144,908 1,702,679 2,321,128 2,931,761 3,553,069
Direct taxes 173,965 206,825 265,385 340,763 434,180 711,777 970,069 1,202,430 1,453,085
Indirect taxes 214,798 229,927 329,749 383,006 710,729 990,902 1,351,058 1,729,331 2,099,984
Domestic indirect taxes 108,160 98,617 161,197 204,502 359,297 525,970 726,304 966,939 1,204,957
Import duties and taxes 106,638 131,310 168,553 178,504 351,432 464,933 624,755 762,392 895,027
Nontax revenue 55,819 62,290 89,887 130,378 179,654 229,067 278,971 337,078 400,903
Grants 34,305 26,693 32,128 33,032 216,967 110,537 118,019 125,175 148,024
Program grants 10,747 0 2,426 0 131,932 13,047 15,140 16,430 17,662
Project grants 23,558 26,693 29,701 33,032 85,035 97,490 102,879 108,745 130,362

Total expenditure and net lending (cash basis) 599,007 781,789 943,881 1,120,903 1,805,053 2,427,700 3,175,465 3,902,993 4,638,167
2
Recurrent expenditure 363,597 518,302 588,122 653,136 1,194,902 1,533,969 1,896,887 2,331,863 2,766,356
Defense spending 37,092 102,617 82,825 71,122 80,430 109,257 133,060 160,775 191,218
3
Poverty-reducing expenditure 176,979 208,540 234,055 262,969 460,252 729,745 933,162 1,183,904 1,408,077
Education 107,513 127,506 145,117 162,037 284,262 434,937 556,176 705,621 839,230
Health 40,665 47,267 53,596 61,108 107,202 184,528 235,965 299,369 356,055
Agriculture 21,850 23,282 26,288 29,632 51,984 83,516 106,796 135,492 161,147
Natural resources 5,051 7,779 6,928 7,453 12,288 19,742 25,245 32,029 38,093
Roads 1,899 2,706 2,126 2,738 4,515 7,023 8,981 11,394 13,552
Interest payments 24,001 38,513 54,544 68,888 179,926 247,453 258,407 295,732 344,683
Domestic interest and charges 16,563 26,602 41,557 56,774 140,125 192,014 195,229 216,467 253,090
4
External interest payments 7,438 11,911 12,987 12,114 39,801 55,439 63,178 79,266 91,593
Other recurrent expenditure 125,525 168,632 216,699 250,157 474,295 447,513 572,257 691,451 822,378
Capital expenditure 235,410 263,488 355,759 467,767 610,151 893,731 1,278,578 1,571,130 1,871,811
Central treasury 186,923 216,570 284,022 382,496 460,184 718,691 1,081,870 1,362,924 1,630,074
External project grants 23,558 26,693 29,701 33,032 85,035 97,490 102,879 108,745 130,362
External project loans 24,929 20,224 42,036 52,239 64,932 77,550 93,829 99,461 111,375

Overall balance
Including grants -120,119 -256,054 -226,733 -233,725 -263,523 -385,416 -457,346 -508,979 -536,171
Excluding grants -154,424 -282,747 -258,860 -266,757 -480,490 -495,953 -575,366 -634,154 -684,195

Financing 142,064 265,726 243,219 240,422 263,523 385,416 457,346 508,979 536,171
Net external financing 29,818 3,295 28,976 24,579 202,656 -40,965 75,217 76,143 -124,843
Gross borrowing 5 26,804 20,224 51,843 52,239 308,126 77,550 196,611 184,938 111,375
IMF budget support 66,194 0 0 0 0
Project loans 24,929 20,224 42,036 52,239 64,932 77,550 93,829 99,461 111,375
Budget support 1,875 0 9,807 0 177,000 0 102,782 85,477 0
Amortization, due -4,995 -16,929 -22,867 -27,659 -215,083 -123,973 -142,514 -204,859 -236,219
Net domestic financing 6 89,426 262,431 214,243 226,077 126,354 271,335 382,129 432,836 661,014
Banking system 34,862 206,614 141,729 137,785 29,260 144,384 191,065 216,418 330,507
Nonbank sources 54,564 55,817 72,514 88,292 97,094 126,951 191,065 216,418 330,507
o/w gross advances from NBE 51,625 61,201 189,543 121,363 0 0 0 0 0
o/w T-bills and T-bonds 88,378 201,230 24,700 104,714 126,354 271,335 382,129 432,836 661,014
o/w Other (incl. net deposit withdrawal) -50,577 0 0 0 0 0 0 0 0
Privatization proceeds 22,820 0 0 0 0 89,559 0 0 0
Other below-the-line operations 7 -21,945 -9,673 -16,486 -6,697 -65,487 65,487 0 0 0
Residual gap 109,614 5,458 21,120 96,064 0

CBE recapitalization
Total debt outstanding 900,000 900,000 900,000 900,000 771,429 642,858
Debt service 0 76,050 84,500 88,725 213,071 201,071
Amortization 0 0 0 0 128,571 128,571
Interest (included in the budgetary central government) 0 76,050 84,500 88,725 84,500 72,500

Total net financing (budgetary plus CBE recap. amortization) 240,422 263,523 385,416 457,346 637,550 664,742

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.

28 INTERNATIONAL MONETARY FUND

©International Monetary Fund. Not for Redistribution

 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 Prel. Proj. Projections

Total revenue and grants 11.0 8.5 8.2 7.5 9.9 10.3 11.3 11.7 11.9
Revenue 10.2 8.1 7.9 7.3 8.5 9.8 10.8 11.2 11.4
Tax revenue 9.0 7.1 6.8 6.2 7.4 8.6 9.6 10.1 10.3
Direct taxes 4.0 3.4 3.0 2.9 2.8 3.6 4.0 4.1 4.2
Indirect taxes 4.9 3.7 3.8 3.3 4.6 5.0 5.6 5.9 6.1
Domestic indirect taxes 2.5 1.6 1.8 1.7 2.3 2.7 3.0 3.3 3.5
Import duties and taxes 2.5 2.1 1.9 1.5 2.3 2.4 2.6 2.6 2.6
Nontax revenue 1.3 1.0 1.0 1.1 1.2 1.2 1.2 1.2 1.2
Grants 0.8 0.4 0.4 0.3 1.4 0.6 0.5 0.4 0.4
Program grants 0.2 0.0 0.0 0.0 0.9 0.1 0.1 0.1 0.1
Project grants 0.5 0.4 0.3 0.3 0.5 0.5 0.4 0.4 0.4

Total expenditure and net lending (cash basis) 13.8 12.7 10.8 9.5 11.6 12.3 13.2 13.4 13.4
2
Recurrent expenditure 8.4 8.4 6.7 5.6 7.7 7.8 7.9 8.0 8.0
Defense spending 0.9 1.7 0.9 0.6 0.5 0.6 0.6 0.6 0.6
3
Poverty-reducing expenditure 4.1 3.4 2.7 2.2 3.0 3.7 3.9 4.1 4.1
Education 2.5 2.1 1.7 1.4 1.8 2.2 2.3 2.4 2.4
Health 0.9 0.8 0.6 0.5 0.7 0.9 1.0 1.0 1.0
Agriculture 0.5 0.4 0.3 0.3 0.3 0.4 0.4 0.5 0.5
Natural resources 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
Interest payments 0.6 0.6 0.6 0.6 1.2 1.3 1.1 1.0 1.0
Domestic interest and charges 0.4 0.4 0.5 0.5 0.9 1.0 0.8 0.7 0.7
4
External interest payments 0.2 0.2 0.1 0.1 0.3 0.3 0.3 0.3 0.3
Other recurrent expenditure 2.9 2.7 2.5 2.1 3.1 2.3 2.4 2.4 2.4
Capital expenditure 5.4 4.3 4.1 4.0 3.9 4.5 5.3 5.4 5.4
Central treasury 4.3 3.5 3.3 3.3 3.0 3.6 4.5 4.7 4.7
External project grants 0.5 0.4 0.3 0.3 0.5 0.5 0.4 0.4 0.4
External project loans 0.6 0.3 0.5 0.4 0.4 0.4 0.4 0.3 0.3

Overall balance
Including grants -2.8 -4.2 -2.6 -2.0 -1.7 -2.0 -1.9 -1.8 -1.6
Excluding grants -3.6 -4.6 -3.0 -2.3 -3.1 -2.5 -2.4 -2.2 -2.0

Financing 3.3 4.3 2.8 2.0 1.7 2.0 1.9 1.8 1.6

Net external financing 0.7 0.1 0.3 0.2 1.3 -0.2 0.3 0.3 -0.4
5
Gross borrowing 0.6 0.3 0.6 0.4 2.0 0.4 0.8 0.6 0.3
IMF budget support 0.4 0.0 0.0 0.0 0.0
Project loans 0.6 0.3 0.5 0.4 0.4 0.4 0.4 0.3 0.3
Budget Support 0.0 0.0 0.1 0.0 1.1 0.0 0.4 0.3 0.0
Amortization, due -0.1 -0.3 -0.3 -0.2 -1.4 -0.6 -0.6 -0.7 -0.7
6
Net domestic financing 2.1 4.3 2.5 1.9 0.8 1.4 1.6 1.5 1.9
Banking system 0.8 3.4 1.6 1.2 0.2 0.7 0.8 0.7 1.0
Nonbank sources 1.3 0.9 0.8 0.8 0.6 0.6 0.8 0.7 1.0
o/w gross advances from NBE 1.2 1.0 2.2 1.0 0.0 0.0 0.0 0.0 0.0
o/w T-bills and T-bonds 2.0 3.3 0.3 0.9 0.8 1.4 1.6 1.5 1.9
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
Privatization proceeds 0.5 0.0 0.0 0.0 0.0 0.5 0.0 0.0 0.0
7
Other below-the-line operations -0.5 -0.2 -0.2 -0.1 -0.4 0.3 0.0 0.0 0.0
Residual gap 0.7 0.0 0.1 0.3

CBE recapitalization

Total debt outstanding 7.7 5.8 4.6 3.7 2.7 1.9

Debt service 0.0 0.5 0.4 0.4 0.7 0.6
Amortization 0.0 0.0 0.0 0.0 0.4 0.4
Interest (included in the budgetary central government) 0.0 0.5 0.4 0.4 0.3 0.2

Total net financing (budgetary plus CBE recap. amortization) 2.0 1.7 2.0 1.9 2.2 1.9

Memorandum items :
Primary fiscal balance, including grants -2.2 -3.5 -2.0 -1.4 -0.5 -0.7 -0.8 -0.7 -0.6

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 29

©International Monetary Fund. Not for Redistribution

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 Prel. Proj. Projections

I. Depository Corporation Survey

Monetary survey
Net foreign assets -812 -111,428 -160,098 -245,300 -258,654 4,961 227,291 644,765 854,937
Central bank -43,907 -134,219 -191,423 -288,909 -575,987 -369,537 -169,603 225,885 414,171
Commercial banks 43,095 22,791 31,325 43,609 317,334 374,497 396,894 418,880 440,766
Net domestic assets 1,349,078 1,826,738 2,330,946 2,723,192 3,383,933 4,036,949 5,002,454 5,699,242 6,785,452
Domestic credit 1 1,481,844 1,930,622 2,444,436 2,797,752 3,179,390 3,981,364 5,116,400 6,141,723 7,393,860
Claims on government (net) 2 214,269 422,864 573,676 745,541 1,620,117 1,764,501 1,955,566 2,171,984 2,502,491
Claims on nongovernment 1,267,575 1,507,758 1,870,760 2,052,211 1,559,273 2,216,863 3,160,834 3,969,739 4,891,369
Public enterprises 603,517 692,126 779,194 781,894 85,653 256,948 416,953 622,205 807,378
Private sector 664,059 815,631 1,091,566 1,270,317 1,473,620 1,959,915 2,743,881 3,347,534 4,083,992

Broad money 1,348,266 1,715,310 2,170,848 2,477,892 3,125,280 4,041,910 5,229,745 6,344,007 7,640,389
Money 437,392 588,016 706,142 822,499 1,005,485 1,283,162 1,633,254 1,971,846 2,362,972
Currency outside banks 133,621 173,383 211,637 205,441 220,353 261,375 301,183 352,483 408,319
Demand deposits 303,771 414,633 494,505 617,057 785,131 1,021,787 1,332,071 1,619,364 1,954,654
Quasi money 910,874 1,127,294 1,464,706 1,655,393 2,119,795 2,758,747 3,596,491 4,372,161 5,277,417
Savings deposits 816,380 1,016,049 1,315,260 1,461,904 1,872,758 2,437,248 3,177,362 3,862,637 4,662,396
Time deposits 94,494 111,245 149,446 193,489 247,037 321,500 419,129 509,524 615,021

Central bank
Net foreign assets -43,907 -134,219 -191,423 -288,909 -575,987 -369,537 -169,603 225,885 414,171
Foreign assets 125,860 79,820 56,154 82,159 417,140 726,171 1,029,206 1,527,956 1,744,414
Foreign liabilities 169,767 214,038 247,577 371,069 993,127 1,095,708 1,198,810 1,302,071 1,330,243

Net domestic assets 308,209 496,717 669,895 762,133 1,173,566 1,110,288 1,093,101 883,056 910,358
Domestic credit 301,662 371,039 566,123 673,576 595,527 456,982 421,386 234,774 430,076
Government (net) 245,019 326,216 521,300 632,253 632,253 632,253 632,253 632,253 632,253
Other items (net) 6,547 125,678 103,772 88,557 578,039 653,306 671,715 648,281 480,282
Reserve money 264,302 362,499 478,472 473,223 597,579 740,751 923,497 1,108,941 1,324,529
Currency outside banks 133,621 173,383 211,637 205,441 220,353 261,375 301,183 352,483 408,319
Commercial bank reserves 130,681 189,116 266,835 267,782 377,226 479,376 622,314 756,458 916,211
Cash in vault 30,088 34,828 42,679 51,855 72,950 92,704 120,346 146,288 177,182
Reserve deposit 100,593 111,346 127,177 143,739 162,397 182,696 205,534 231,011 289,978

(Annual percentage change, unless otherwise indicated)

Monetary survey
Net foreign assets -90.2 13617.2 43.7 53.2 5.4 -101.9 4482.0 183.7 32.6

Net domestic assets 29.0 35.4 27.6 16.8 24.3 19.3 23.9 13.9 19.1
Domestic credit 1 25.9 30.3 26.6 14.5 13.6 25.2 28.5 20.0 20.4
Claims on government (net) 2 56.3 97.4 35.7 30.0 117.3 8.9 10.8 11.1 15.2
Claims on nongovernment 21.9 18.9 24.1 9.7 -24.0 42.2 42.6 25.6 23.2
Public enterprises 11.0 14.7 12.6 0.3 -89.0 200.0 62.3 49.2 29.8
Private sector 33.8 22.8 33.8 16.4 16.0 33.0 40.0 22.0 22.0
Broad money 29.9 27.2 26.6 14.1 26.1 29.3 29.4 21.3 20.4
Money 21.3 34.4 20.1 16.5 22.2 27.6 27.3 20.7 19.8
Quasi money 34.5 23.8 29.9 13.0 28.1 30.1 30.4 21.6 20.7

Memorandum items:
Base money growth 7.2 37.2 32.0 -1.1 26.3 24.0 24.7 20.1 19.4
Nominal GDP growth 28.6 41.8 41.7 34.7 31.9 27.5 21.8 20.8 18.9
Excess reserve deposit (billions of birr) 31,976 22,206 66,804 33,241 100,931 122,034 156,969 190,764 232,784
Percent of deposits 2.6 2.1 3.4 1.5 3.5 3.2 3.2 3.2 3.2
Money multiplier (broad money/reserve money) 5.10 4.73 4.54 5.24 5.23 5.46 5.66 5.72 5.77
Velocity (GDP/broad money) 3.05 3.59 4.02 4.74 4.96 4.89 4.60 4.58 4.53
Currency-deposit ratio 0.110 0.112 0.108 0.090 0.076 0.069 0.061 0.059 0.056
Birr per U.S. dollar (end of period) 43.7 52.0 54.6 57.3 … … … … …
Nominal GDP (millions of birr) 4,108,684 6,157,015 8,723,117 11,752,138 15,501,351 19,764,918 24,070,865 29,084,512 34,591,679

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.

30 INTERNATIONAL MONETARY FUND

©International Monetary Fund. Not for Redistribution

 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 Prel. Proj. Projections

Percent of GDP
Monetary survey
Net foreign assets 0.0 -1.8 -1.8 -2.1 -1.7 0.0 0.9 2.2 2.5
Central bank -1.1 -2.2 -2.2 -2.5 -3.7 -1.9 -0.7 0.8 1.2
Commercial banks 1.0 0.4 0.4 0.4 2.0 1.9 1.6 1.4 1.3

Net domestic assets 32.8 29.7 26.7 23.2 21.8 20.4 20.8 19.6 19.6
Domestic credit 1 36.1 31.4 28.0 23.8 20.5 20.1 21.3 21.1 21.4
Claims on government (net) 2 5.2 6.9 6.6 6.3 10.5 8.9 8.1 7.5 7.2
Claims on nongovernment 30.9 24.5 21.4 17.5 10.1 11.2 13.1 13.6 14.1
Public enterprises 14.7 11.2 8.9 6.7 0.6 1.3 1.7 2.1 2.3
Private sector 16.2 13.2 12.5 10.8 9.5 9.9 11.4 11.5 11.8

Broad money 32.8 27.9 24.9 21.1 20.2 20.4 21.7 21.8 22.1
Money 10.6 9.6 8.1 7.0 6.5 6.5 6.8 6.8 6.8
Currency outside banks 3.3 2.8 2.4 1.7 1.4 1.3 1.3 1.2 1.2
Demand deposits 7.4 6.7 5.7 5.3 5.1 5.2 5.5 5.6 5.7
Quasi money 22.2 18.3 16.8 14.1 13.7 14.0 14.9 15.0 15.3
Savings deposits 19.9 16.5 15.1 12.4 12.1 12.3 13.2 13.3 13.5
Time deposits 2.3 1.8 1.7 1.6 1.6 1.6 1.7 1.8 1.8

Central bank
Net foreign assets -1.1 -2.2 -2.2 -2.5 -3.7 -1.9 -0.7 0.8 1.2
Foreign assets 3.1 1.3 0.6 0.7 2.7 3.7 4.3 5.3 5.0
Foreign liabilities 4.1 3.5 2.8 3.2 6.4 5.5 5.0 4.5 3.8

Net domestic assets 7.5 8.1 7.7 6.5 7.6 5.6 4.5 3.0 2.6
Domestic credit 7.3 6.0 6.5 5.7 3.8 2.3 1.8 0.8 1.2
Government (net) 6.0 5.3 6.0 5.4 4.1 3.2 2.6 2.2 1.8
Other items (net) 0.2 2.0 1.2 0.8 3.7 3.3 2.8 2.2 1.4

Reserve money 6.4 5.9 5.5 4.0 3.9 3.7 3.8 3.8 3.8
Currency outside banks 3.3 2.8 2.4 1.7 1.4 1.3 1.3 1.2 1.2
Commercial bank reserves 3.2 3.1 3.1 2.3 2.4 2.4 2.6 2.6 2.6
Cash in vault 0.7 0.6 0.5 0.4 0.5 0.5 0.5 0.5 0.5
Reserve deposit 2.4 1.8 1.5 1.2 1.0 0.9 0.9 0.8 0.8

Nominal GDP (millions of birr) 4,108,684 6,157,015 8,723,117 11,752,138 15,501,351 19,764,918 24,070,865 29,084,512 34,591,679

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.

INTERNATIONAL MONETARY FUND 31

©International Monetary Fund. Not for Redistribution

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 Prel. Proj. Projections

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

1
Current account balance -3,169 -5,134 -4,671 -6,014 -5,775 -4,332 -4,154 -4,012 -4,165
Excl. official transfers 1 -4,538 -6,270 -5,764 -7,153 -7,175 -5,898 -5,808 -5,714 -5,918

Trade balance -10,671 -13,991 -13,512 -14,642 -14,448 -14,506 -15,292 -16,467 -17,366
Exports of goods 3,617 4,101 3,618 3,799 4,587 5,206 6,229 7,445 8,394
Imports of goods -14,288 -18,092 -17,130 -18,441 -19,035 -19,712 -21,521 -23,913 -25,760

Services (net) 587 1,213 1,399 1,610 1,402 1,708 1,935 2,165 2,501
Exports 4,895 6,350 7,174 7,866 7,970 8,933 10,244 11,721 12,630
Imports -4,308 -5,137 -5,775 -6,256 -6,568 -7,225 -8,309 -9,555 -10,129
1
Income (net) -572 -574 -449 -332 -850 -878 -948 -1,021 -966

Private transfers (net) 6,118 7,082 6,798 6,211 6,721 7,777 8,497 9,609 9,912

Official transfers (net) 1 1,369 1,136 1,093 1,139 1,400 1,566 1,654 1,702 1,754

Capital account balance 1 3,467 1,975 2,977 5,819 4,866 4,641 4,506 4,829 5,490
Foreign direct investment (net, incl. privatization) 3,970 3,308 3,428 3,906 4,494 4,648 4,734 5,574 6,291
1
Other investment (net) -504 -1,333 -451 1,913 372 -7 -228 -745 -801
Federal government 706 274 1,943 595 432 730 561 117 208
Disbursements 1 973 616 2,372 1,090 2,055 1,630 1,532 1,435 1,901
1
Amortization -267 -343 -429 -494 -1,623 -900 -971 -1,318 -1,692
Other public sector 1,2 -1,070 -1,668 -860 1,782 -60 -736 -790 -862 -1,009
Disbursements 420 291 541 2,536 914 300 319 545 212
1
Amortization -1,490 -1,959 -1,401 -754 -974 -1,037 -1,109 -1,407 -1,222
Private sector borrowing (net) 153 0 0 73 0 0 0 0 0
Other (net) -293 62 -1,534 -536 0 0 0 0 0

Errors and omissions -339 520 885 531 0 0 0 0 0

Overall balance -41 -2,639 -809 336 -909 309 351 817 1,326

Financing 41 2,639 809 -336 909 -309 -351 -817 -1,326

Central bank (net; increase –) 238 1,371 469 -624 -27 -1,705 -1,542 -2,681 -1,326
Reserves (increase –) 244 1,371 469 -412 -1,688 -2,165 -2,003 -3,124 -1,289
Liabilities (increase +) -6 0 0 -212 1,661 460 461 444 -37
IMF credit (net) -6 0 0 -212 1,661 460 461 444 -37
of which: IMF Rapid Financing Instrument (RFI) … … … … … … … … …
SDR allocation 0 397 0 0 0 0 0 0 0
Prospective donor financing 0 0 0 0 1,500 1,000 700 550 0
of which: grants 0 0 0 0 1,000 0 0 0 0
Exceptional Financing 488 720 475 288 1,050 646 491 1,313 0
3
Debt service restructuring 250 663 475 288 1,050 646 491 1,313 0
Reprofiling of external sovereign deposits at NBE, 2020 475 288 0 0 0 0 0
Other restructuring (incl. pros. G20 CF) 0 0 0 0 1,050 646 491 1,313 0
G20 Debt Service Suspension Initiative 3 231 57 0 0 0 0 0 0 0
4
IMF CCR Trust debt relief 7 1 0 0 0 0 0 0 0

(Annual percentage change, unless otherwise indicated)

Memorandum items :
Exports of goods 21.1 13.4 -11.8 5.0 20.8 13.5 19.6 19.5 12.7
Imports of goods 2.9 26.6 -5.3 7.7 3.2 3.6 9.2 11.1 7.7
Services exports 4.4 29.7 13.0 9.6 1.3 12.1 14.7 14.4 7.8
Services imports 0.4 19.2 12.4 8.3 5.0 10.0 15.0 15.0 6.0
Private transfers 18.0 15.7 -4.0 -8.6 8.2 15.7

Exports of goods and services (percent of GDP) 7.6 8.2 6.6 5.6 9.6 9.9 10.0 10.2 10.0
Imports of goods and services (percent of GDP) -16.7 -18.3 -14.0 -11.8 -19.5 -18.8 -18.2 -17.9 -17.0
Trade balance (percent of GDP) -9.6 -11.0 -8.3 -7.0 -11.0 -10.1 -9.3 -8.8 -8.2
Private transfers (net, percent of GDP) 5.5 5.6 4.2 3.0 5.1 5.4 5.2 5.1 4.7

Gross official reserves (millions U.S. dollars) 2,866 1,495 1,026 1,438 3,126 5,291 7,295 10,419 11,707
(Months of following year's imports of goods and services) 1.5 0.8 0.5 0.7 1.4 2.1 2.6 3.5 3.5

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
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.

32 INTERNATIONAL MONETARY FUND

©International Monetary Fund. Not for Redistribution

 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 Prel. Proj. Projections

(Percent of GDP, unless otherwise indicated)

Current account balance 1 -2.8 -4.0 -2.9 -2.9 -4.4 -3.0 -2.5 -2.1 -2.0
Excl. official transfers 1 -4.1 -4.9 -3.5 -3.4 -5.5 -4.1 -3.5 -3.1 -2.8

Trade balance -9.6 -11.0 -8.3 -7.0 -11.0 -10.1 -9.3 -8.8 -8.2
Exports of goods 3.3 3.2 2.2 1.8 3.5 3.6 3.8 4.0 4.0
Imports of goods -12.8 -14.3 -10.5 -8.8 -14.5 -13.7 -13.1 -12.8 -12.2

Services (net) 0.5 1.0 0.9 0.8 1.1 1.2 1.2 1.2 1.2
Exports 4.4 5.0 4.4 3.7 6.1 6.2 6.2 6.3 6.0
Imports -3.9 -4.1 -3.5 -3.0 -5.0 -5.0 -5.1 -5.1 -4.8
1
Income (net) -0.5 -0.5 -0.3 -0.2 -0.6 -0.6 -0.6 -0.5 -0.5

Private transfers (net) 5.5 5.6 4.2 3.0 5.1 5.4 5.2 5.1 4.7
1
Official transfers (net) 1.2 0.9 0.7 0.5 1.1 1.1 1.0 0.9 0.8

Capital account balance 1 3.1 1.6 1.8 2.8 3.7 3.2 2.7 2.6 2.6
Foreign direct investment (net, incl. privatization) 3.6 2.6 2.1 1.9 3.4 3.2 2.9 3.0 3.0
1,2
Other investment (net) -0.5 -1.1 -0.3 0.9 0.3 0.0 -0.1 -0.4 -0.4
Federal government 0.6 0.2 1.2 0.3 0.3 0.5 0.3 0.1 0.1
1
Disbursements 0.9 0.5 1.4 0.5 1.6 1.1 0.9 0.8 0.9
1
Amortization -0.2 -0.3 -0.3 -0.2 -1.2 -0.6 -0.6 -0.7 -0.8
Other public sector 1 -1.0 -1.3 -0.5 0.8 0.0 -0.5 -0.5 -0.5 -0.5
Disbursements 0.3 0.2 0.3 1.9 0.6 0.2 0.2 0.3 0.1
Amortization 1 -1.2 -1.2 -0.7 -0.6 -0.7 -0.7 -0.7 -0.8 -0.6
Private sector borrowing (net) 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Other (net) -0.3 0.0 -0.9 -0.3 0.0 0.0 0.0 0.0 0.0

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

Overall balance 0.0 -2.1 -0.5 0.2 -0.7 0.2 0.2 0.4 0.6

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

Gross official reserves 2.6 1.2 0.6 0.7 2.4 3.7 4.4 5.6 5.5
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
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 33

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 5. The Federal Democratic Republic of Ethiopia: Financial

Soundness Indicators of the Banking Sector1
(Percent, unless otherwise indicated)

Jun-22 Jun-23 Dec-23 Mar-24 Jun-24 Sep-24

Capital adequacy
Capital to Risk-Weighted Assets 16.3 14.7 15.7 15.7 15.4 17.9
Capital to Assets 7.5 7.8 8.4 8.4 8.2 9.3

Asset quality
NPLs to Total Loans 3.9 3.6 4.3 4.7 3.9 5.5
NPLs Net of Provisions to Capital -4.7 -8.6 -2.6 -8.6 -0.9 6.1

Earning and profitability

Return on Assets 2.4 2.0 1.4 1.7 2.0 -1.3
Return on Equity2 32.6 25.7 17.4 21.5 24.6 -14.9
Gross Interest Income to Total Income 71.6 76.1 77.4 77.0 76.5 39.7
Interest Margin to Gross Income 42.3 45.3 46.2 46.8 47.4 25.2
Non-interest Expenses to Gross Income 3 34.5 43.1 46.4 45.7 46.7 87.3

Liquidity
Liquid Assets to Total Assets 21.0 19.3 16.5 16.4 17.8 18.7
Liquid Assets to Total Deposits 27.1 24.3 20.7 20.7 22.4 23.8

Sources: National Bank of Ethiopia

1
Data after June 2024 reflects the impact of the CBE recapitalization and the July 2024 Asset Classification and
Provisioning Directive (with updates to NPL definitions and provision requirements). 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.
3
Gross income comprises net interest income and total non-interest income.

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
Prel. Projections (FY2024/25-27/28)

External financing requirement 9,026 13,291 10,304 9,946 11,636 45,177

Current account deficit, excl. official transfers 7,153 7,175 5,898 5,808 5,714 24,596
Federal government amortization 494 1,623 900 971 1,318 4,811
1
Other public sector amortization 754 974 1,037 1,109 1,407 4,527
Repayments to Fund 212 217 55 55 72 400
Change in gross reserves (increase +) 412 1,688 2,165 2,003 3,124 8,981

External financing sources 7,599 7,463 5,928 6,585 7,554 27,530

Foreign direct investment, excl. privatization 3,906 4,494 3,998 4,734 5,574 18,800
External loans to Federal government 1,090 2,055 1,630 1,532 1,435 6,651
Other public sector external borrowing 2,536 914 300 319 545 2,079
Other (net, incl. errors and omission) 68 0 0 0 0 0

Financing gap (need for financing +) 1,427 5,828 4,377 3,361 4,082 17,648

Expected financing 1,427 1,400 2,216 1,654 1,702 6,972

Official transfers 1,139 1,400 1,566 1,654 1,702 6,322
Privatization proceeds 0 0 650 0 0 650
2
Reprofiling of external sovereign deposits at NBE, 2020 288 0 0 0 0 0

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

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

Memorandum items :
Gross official reserves (millions U.S. dollars) 1,438 3,126 5,291 7,295 10,419
(Months of following year's imports of goods and services) 0.7 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.

34 INTERNATIONAL MONETARY FUND

©International Monetary Fund. Not for Redistribution

 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.

INTERNATIONAL MONETARY FUND 35

©International Monetary Fund. Not for Redistribution

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

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

2023/24–2039/401
(In millions of SDR unless stated otherwise)

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 2039/40

Fund obligations based on existing credit

Principal 165.4 41.8 41.8 55.1 28.4 136.5 204.5 204.5 204.5 204.5 102.2 0.0 0.0 0.0 0.0 0.0
Charges and interest (excl. obligations to SDR department) 8.3 3.0 2.3 1.6 0.9 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2
Fund obligations based on existing and prospective credit
(In millions of SDR) 173.7 44.7 44.1 56.7 29.3 155.9 300.3 377.0 453.7 511.2 389.8 210.9 134.2 57.5 0.0 0.0
Principal 165.4 41.8 41.8 55.1 28.4 155.7 300.3 377.0 453.7 511.2 389.8 210.9 134.2 57.5 0.0 0.0
PRGT 0.0 26.7 26.7 40.1 13.4 148.1 300.3 377.0 453.7 511.2 389.8 210.9 134.2 57.5 0.0 0.0
EFF 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 0.0
RFI 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 0.0
Charges and interest (excl. obligations to SDR department) 8.3 3.0 2.3 1.6 0.9 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

2
Total obligations based on existing and prospective credit
In millions of SDRs 173.7 44.7 44.1 56.7 29.3 155.9 300.3 377.0 453.7 511.2 389.8 210.9 134.2 57.5 0.0 0.0
In millions of U.S. dollars 231.1 59.6 58.9 76.0 39.3 208.9 402.4 505.1 607.9 684.9 522.2 282.5 179.8 77.1 0.0 0.0
In percent of general government revenue 2.1 0.4 0.3 0.4 0.2 0.8 1.3 1.4 1.5 1.5 1.0 0.5 0.3 0.1 0.0 0.0
In percent of exports of goods and services 1.8 0.4 0.4 0.4 0.2 0.9 1.5 1.8 1.9 1.9 1.3 0.6 0.4 0.1 0.0 0.0
In percent of total external debt service 6.3 2.1 1.9 2.0 1.0 5.8 14.5 17.3 20.2 23.9 18.0 10.6 7.4 3.2 0.0 0.0
In percent of gross international reserves 7.4 1.1 0.8 0.7 0.3 1.9 3.4 3.8 4.2 4.3 3.0 1.5 0.9 0.3 0.0 0.0
In percent of GDP 0.2 0.0 0.0 0.0 0.0 0.1 0.1 0.2 0.2 0.2 0.1 0.1 0.0 0.0 0.0 0.0
In percent of quota 57.8 14.9 14.6 18.9 9.8 51.9 99.9 125.4 150.9 170.0 129.6 70.1 44.6 19.1 0.0 0.0

Outstanding Fund credit (end of period)

In millions of SDRs 1,607.0 1,948.7 2,290.3 2,618.6 2,590.2 2,434.5 2,134.2 1,757.2 1,303.5 792.4 402.6 191.7 57.5 0.0 0.0 0.0
In millions of U.S. dollars 2,137.6 2,598.2 3,061.1 3,508.5 3,470.4 3,261.9 2,859.5 2,354.4 1,746.5 1,061.6 539.4 256.8 77.1 0.0 0.0 0.0
In percent of general government revenue 21.6 19.2 17.8 17.1 14.7 12.2 9.4 6.8 4.4 2.4 1.1 0.4 0.1 0.0 0.0 0.0
In percent of exports of goods and services 17.0 18.4 18.6 18.3 16.5 14.0 10.9 8.2 5.4 2.9 1.3 0.6 0.2 0.0 0.0 0.0
In percent of total external debt 5.8 6.7 7.6 8.4 8.5 8.1 7.1 5.8 4.3 2.6 1.3 0.6 0.2 0.0 0.0 0.0
In percent of gross international reserves 68.4 49.1 42.0 33.7 29.6 30.1 24.1 17.9 12.1 6.7 3.1 1.3 0.4 0.0 0.0 0.0
In percent of GDP 1.6 1.8 1.9 1.9 1.6 1.4 1.1 0.8 0.5 0.3 0.1 0.1 0.0 0.0 0.0 0.0
In percent of quota 534.4 648.0 761.7 870.8 861.4 809.6 709.8 584.4 433.5 263.5 133.9 63.8 19.1 0.0 0.0 0.0
PRGT 511.9 630.5 749.2 863.3 858.9 809.6 709.8 584.4 433.5 263.5 133.9 63.8 19.1 0.0 0.0 0.0
EFF 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 0.0
RFI 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

Net use of Fund credit (millions of SDR) 1,240.4 341.6 341.6 328.3 -28.4 -155.7 -300.3 -377.0 -453.7 -511.2 -389.8 -210.9 -134.2 -57.5 0.0 0.0
Disbursements 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 0.0
Repayments and repurchases 165.4 41.8 41.8 55.1 28.4 155.7 300.3 377.0 453.7 511.2 389.8 210.9 134.2 57.5 0.0 0.0
3
Debt relief under the CCRT 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) 1,324.6 1,931.7 2,600.1 3,268.8 3,954.0 4,656.0 5,511.9 6,495.9 7,714.8 9,087.2 10,709.5 12,606.6 14,879.4 16,938.2 19,192.1 21,675.7
Exports of goods and services (billions of U.S. dollars) 12.6 14.1 16.5 19.2 21.0 23.4 26.2 28.8 32.4 36.2 40.5 45.3 50.7 55.7 61.0 66.6
Total debt service (millions of U.S. dollars)
Gross international reserves (billions of U.S. dollars) 3.1 5.3 7.3 10.4 11.7 10.8 11.9 13.1 14.5 15.9 17.5 19.2 21.0 22.7 24.6 26.7
In months of prospective imports 1.4 2.1 2.6 3.5 3.5 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 2.9 0.0
Nominal GDP (billions of U.S. dollars) 131.4 143.4 163.9 187.1 211.2 236.9 268.9 303.7 344.4 389.9 441.6 499.2 564.7 617.3 672.7 731.6
SDR per U.S. dollar (period average) 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 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.

36 INTERNATIONAL MONETARY FUND

©International Monetary Fund. Not for Redistribution

 Table 9. The Federal Democratic Republic of Ethiopia: Quantitative Performance Criteria and Indicative Targets,
June 2024–September 2025
(All figures in millions of Ethiopian Birr, unless otherwise specified)
1
end-Jun 2024 Aug. 16, 2024 end-Sep 2024 end-Dec 2024 end-Mar 2025 end-Jun 2025 end-Sep 2025 end-Dec 2025
Prel. Initial level Performance Criteria Performance Criteria Performance Criteria Indicative Target Performance Criteria Indicative target Performance Criteria

Prog. Actual Status Prog. Adj. Actual Status Prog. Prog. Prog. Prog. Proposed

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 -5,972 Met 69,000 95,000 106,000 76,000 105,000
includes grants and excludes interest payments) 2/, 3/
Net international reserves (floor, cumulative change since previous June, US$ millions) (end-Jun 2024 is for 1,242 Met
793 630 1328 Met 500 534 500 400 400 400 400
initial 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 N/A 153,542 Met 192,000 347,000 578,000 120,000 276,000
beginning of the current fiscal year)

Net NBE claims on the general government (ceiling, cumulative change since previous June) (end-June 2024 632,253 0 -10895 Met 0 N/A -6,727 Met 0 0 0 0 0
for 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 N/A 0 Met 0 0 0 0 0
enterprises (ceiling, US$ millions) 4/
Accumulation of external payment arrears by the general government, the NBE and public enterprises (ceiling, 0 0 Met 0 N/A 0 Met 0 0 0 0 0
US$ millions)

Indicative targets
Gross claims on public enterprises by commercial banks (ceiling, cumulative change since previous June) (end- 747,485 N/A N/A N/A 37,000 N/A -641,825 Met 74,000 110,000 147,000 50,000 95,000
Jun 2024 is for initial level) 3/, 5/
Government Contributions to Productive Safety Net Programme cash transfers (floor, cumulative sum of 9,000 N/A N/A N/A 6,500 N/A 2,370 Not Met 22,100 33,200 51,400 12,000 22,500

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

contributions since the beginning of the current fiscal year) 6/
Present value of external new debt (excluding IMF credit) contracted or guaranteed by the general government, N/A N/A N/A 2,000 N/A 248 Met 2,500 2,750 3,000 N/A 1200
the NBE and public enterprises (ceiling for the fiscal year ending June, US$ millions)

Memorandum items:
INTERNATIONAL MONETARY FUND

Official external grants disbursed to the government (US$ millions, cumulative since previous June) 791 1211 1,225 1419 1629 1839 201 401
Official external loans disbursed to the government (US$ millions, cumulative since previous June) 627 638 657 775 913 1,050 1,141 1281
Gross privatization proceeds (US$ millions, cumulative since previous June) 0 0 0 0 0 0 163 325

Sources: Ethiopian authorities and IMF staff estimates and projections.

1/Not all quantitative performance criteria and indicative targets were assessed at the First Review given data availability.

2/ Excluding on-lending from the general government.

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

4/ 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.
5/ For the IT on gross claims on public enterprises by commercial banks, the Dec. 2024-December2025 test dates exclude changes in claims related to CBE recapitalization.
6/ 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).
37

©International Monetary Fund. Not for Redistribution

 Table 10. The Federal Democratic Republic of Ethiopia: Structural Benchmarks
38

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

INTERNATIONAL MONETARY FUND

Measure Rationale Board Status

Approved
Target Date

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

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

3. The NBE to finalize and publish audited financial statements for 2021/22–2022/23. Update and modernize End-March 2025 Target date
governance of the NBE modified from
January 2025

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

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

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

7. Council of Ministers to submit draft FY2025/26 budget for the Federal Government in line Ensure fiscal targets consistent End-June 2025
with IMF program’s macro-framework. with program objectives

8. To strengthen transparency, internal controls, and public investment management, Ministry Strengthen PFM internal controls End-June 2025 New
of Finance will allocate funding for the Road Fund through the Federal Government budget. and public investment
management

©International Monetary Fund. Not for Redistribution

 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 11. The Federal Democratic Republic of Ethiopia: Public and Publicly Guaranteed
Debt Profile

Debt stock 1/ Debt Service 2/

(as of end-June 2024) 2024/25 2025/26 2026/27 2024/25 2025/26 2026/27

In US$ In percent of In percent of In US$ million In percent of GDP

million total GDP
Total 70,486 100.0 34.4 5,497 5,855 6,117 4.2 4.1 3.7
o/w Federal government 55,019 78.1 26.8 4,396 4,266 4,323 3.3 3.0 2.6

External 30,842 43.8 15.0 2,969 2,248 2,399 2.3 1.6 1.5

International financial institutions 15,554 22.1 7.6 708 567 607 0.5 0.4 0.4
IMF 482 0.7 0.2 229 59 58 0.2 0.0 0.0
World Bank 12,090 17.2 5.9 379 401 437 0.3 0.3 0.3
AfDB/AfDF 2,208 3.1 1.1 56 60 65 0.0 0.0 0.0
Others 774 1.1 0.4 45 46 47 0.0 0.0 0.0
o/w IFAD 430 0.6 0.2 13 15 16 0.0 0.0 0.0

Bilateral official creditors 3/ 4/ 12,236 17.4 6.0 761 1,335 1,310 0.6 0.9 0.8
Paris Club 1,925 2.7 0.9 177 191 190 0.1 0.1 0.1
o/w Italy 531 0.8 0.3 73 75 69 0.1 0.1 0.0
o/w Korea 366 0.5 0.2 0 0 1 0.0 0.0 0.0
Non-Paris Club 10,311 14.6 5.0 584 682 1,065 0.4 0.5 0.6
o/w China 5,175 7.3 2.5 335 632 603 0.3 0.4 0.4
o/w UAE 3,009 4.3 1.5 48 95 93 0.0 0.1 0.1
Bonds 1,066 1.5 0.5 1,099 0 0 0.8 0.0 0.0

Commercial creditors 4/ 5/ 1,986 2.8 1.0 401 346 482 0.3 0.2 0.3

Domestic 39,644 56.2 19.3 2,527 3,606 3,719 1.9 2.5 2.3

Held by residents, total 39,644 56.2 19.3 2,527 3,606 3,719 1.9 2.5 2.3
T-bills 6/ 7,811 11.1 3.8 … … …
Commercial banks 2,883 4.1 1.4 … … …
Non-bank financial institutions 4,929 7.0 2.4 … … …
Bonds 7/ 12,866 18.3 6.3 … … …
Central bank 7,563 10.7 3.7 … … …
Loans 8,815 12.5 4.3 … … …
Central bank direct advance 4,221 6.0 2.1 … … …
Commercial banks 4,594 6.5 2.2 … … …
Transferred to LAMC 10,152 14.4 5.0

Held by nonresidents, total 0 0.0 0.0 … … …

Memo Items:

Collateralized debt 8/ 0 … … … … …
Contingent liabilities 9/ 0 … … … … …
Nominal GDP (US dollar, end of period) 205,004 … … … … …
Sources: Ethiopian authorities; and IMF staff estimates and projections.
1/ Consistent with the DSA coverage and may differ from official debt statistics on external debt.
2/ Includes roll-over of T-bills.
3/ Includes loans backed by export credit agencies.
4/ Includes pre-HIPC arrears waiting to receive HIPC comparable treatment.
5/ Loans from commercial banks and credit suppliers non-backed by ECAs and loans backed by China export credit agency.
6/ Marketable T-bills issued under auctions since December 2019.
7/ Includes previously issued short-term debt (direct advance and T-bills) that were converted into bonds.
8/ No collateralized debt is reported.
9/ No significant contingent liabilities have been identified, with the debt perimeter comprehensive encompassing non-guaranteed SOEs debt.

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Annex I. Risk Assessment Matrix 1

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

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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Relative
Source of Risk Impact if Realized Policy Response
Likelihood

External Risks1

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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Appendix I. Letter of Intent

Addis Ababa, December 18, 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, has continued to advance well. The interest-rate based monetary
policy framework and market-determined exchange rate introduced at the start of the program are
developing rapidly. Since completion of the first review on October 18, 2024, we have launched an
interbank market in both domestic and foreign currency, with an encouraging build-up in
transactions and volumes, and we have taken further liberalizing measures in the foreign exchange
market. Foreign exchange shortages have eased substantially, and spreads between the official and
parallel markets have again fallen to low levels. Businesses and consumers are finding it ever 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 was
approved by parliament in late November; (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,

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including making the monetary policy rate positive in real terms (based a measure of projected
inflation that is developed in consultation with the IMF staff) 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 191.70 million for completion of the second review of the ECF arrangement. As
part of this second program review, we also request (i) modification of the completion date for the
structural benchmark on publication of NBE audits; (ii) completion of the financing assurances
review; and (iii) temporary approval of exchange restrictions on the grounds that these measures
have been imposed for balance of payments reasons, are temporary, non-discriminatory, and do not
give Ethiopia unfair competitive advantage. These measures include: the imposition of hard ceilings
on access to and use of FX for travel purposes, the prohibition of access to and use of FX for the
purposes of cross-border payment of moderate family remittances, and the exchange restriction on
backlog dividends.

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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Attachment I. Memorandum of Economic and Financial Policies

Addis Ababa, December 18, 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 will be launched shortly.

5. Real GDP growth has remained resilient. Growth rose from 7.2 percent in 2022/23 to
8.1 percent in 2023/24, 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
agricultural production due to favorable rains and initiatives to increase irrigated crop production,
growth in mining and lately in manufacturing and electricity (with a large project coming online)
have driven the recovery.

6. Inflation has been muted, with lower than anticipated passthrough effects from the
exchange rate depreciation so far. Inflation fell to 16.9 percent in November from 18.6 percent in
July, with decreases in both food and non-food components. Inflation has partly been influenced by
the temporary effects of the exchange rate reform but has remained under control due to the
National Bank of Ethiopia's (NBE) decisive actions since 2023. These actions include curbing
monetary financing of fiscal deficits and controlling the growth of credit to the private sector.
Additionally, gradual adjustments to key regulated prices, such as fuel, public transport, and
electricity, alongside price stabilization efforts for imported edible oil and medicines, have helped
mitigate and smooth the reform's impact on consumers, aligning with program objectives.

7. Balance of payments (BOP) developments are encouraging. The current account deficit
for 2023/24 remained unchanged from the previous year at 2.9 percent of GDP, with the goods
trade deficit narrowing to 7.0 percent of GDP from 8.3 percent, as a decline in imports offset lower
exports and income from private transfers declined. However, preliminary data for the first quarter
of 2024/25 indicate a positive initial response to foreign exchange (FX) reform, with goods exports
rising by 81 percent year-on-year as gold and coffee exporters switched sales into official exports.
The increase in gold exports reflects previously smuggled production moving to official channels in
response to improved price incentives. The increase in coffee exports is due to record high global
prices, inventory sales and a shift from the domestic to export markets following exchange rate
reform. In the same quarter, goods imports showed a slight decline compared to same period last
year while remittances increased by 26 percent year-on-year. Reflecting these developments, a
current account surplus was recorded in the first quarter. International reserves stood at $3.4 billion
as of end-October, or equivalent to 1.6 months of import coverage at end-October 2024.

8. The federal government budget recorded a primary surplus in the first quarter of
FY2024/25, reflecting strong revenue performance and lags in spending execution. Tax
revenues grew 67 percent compared to the same period of the previous fiscal year, reflecting our
strong efforts to achieve the ambitious revenue mobilization targets for this year. Domestic indirect
taxes (VAT and excise) rose by 73 percent on implementation of VAT and excise reforms. Exchange
rate unification resulted in a “windfall” in import tax receipts, with custom revenues doubling during

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August-September compared to the previous year. A small primary surplus was recorded as key
program-supported spending measures awaited adoption of the Supplementary Budget, which now
is endorsed by the parliament. The lower-than-targeted allocation on the safety net programs
(Indicative Target) at end-September reflects the time required for interagency coordination and
preparation required to expand coverage and absorb the significantly increased budget envelope, as
well as for Supplementary Budget preparation and approval. We anticipate allocations will be in line
with program targets from now on.

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
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. The NBE has maintained limits on the
annual growth in commercial bank credit to the private sector since August 2023. The introduction
of a new monetary policy framework and the operationalization of OMOs in July 2024 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 and interbank money market to meet liquidity needs. Although the share of liquid
assets to total assets in banking system remains above the prudential limit of 15 percent, liquidity
conditions have tightened considerably with broad money falling from 25 percent of GDP in
FY22/23 to 17.0 percent of GDP at end-October 2024. While market-determined term deposit rates
have shown a modest increase over the past year, interest rates generally remain well below
inflation. We expect to hold a first meeting of the Monetary Policy Committee (MPC) in late
December.

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 15 percent of GDP in 2023/24. With domestic debt falling too, total

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public and publicly guaranteed debt declined from 56.1 percent of GDP in 2020/21 to around 34
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 FX shortages and long-term
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 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. The transition to a flexible exchange rate regime is progressing well. FX availability has
greatly improved, with no evidence of a macroeconomically significant backlog in FX demand. Many
banks have reported underutilization of available FX, as import demand is constrained by tight Birr
liquidity, particularly at private banks. This contributed to a relatively stable exchange rate despite
the recent strengthening of the US dollar globally. The parallel market premium relative to the NBE
indicative rate (calculated as the weighted average exchange rate of banks’ FX transactions)
narrowed and stabilized in single digits after having widened in October 2024. Banks’ FX buying
volume has steadily increased, bid-offer spreads narrowed, and the interbank FX market is showing
growing activity and volumes. The banking sector has continued to close its net open position,
mainly driven by private banks. NBE conducted no FX intervention since August 7th, 2024.

15. Transitional arrangements to address the legacy letters of credit (LCs) for fuel related
to pre-exchange rate reform imports are being implemented, while fuel LCs opened since the
reform will be settled via the banking system with no NBE FX support.
• In line with the market determination of the exchange rate, CBE and private banks
remain primarily responsible for settling all LCs. NBE is supporting the clearance of
legacy fuel LCs in 2024/25 up to a maximum amount of US$1.27 billion (US$670 million

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allocated at program initiation, including US$600 million agreed at the first review of the
ECF). NBE’s contribution is sold directly to CBE at the NBE selling rate, while NBE is
considering introducing an auction mechanism.
• CBE and other commercial banks are 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 each bank’s respective published selling
rate. If EPSE can get a better price from a bank that has already filled its contribution, it is
allowed to do so. After FY2025/26, there will be no special arrangement.

16. Several steps to improve FX market functioning have been taken:

• We eliminated the requirement for exporters to surrender retained FX after one-month in
November 2024. This will help exporters to better manage their FX cashflow and risks,
payment for import of necessary inputs, and the determination of the market-clearing
exchange rate.
• NBE granted licenses for twelve non-bank FX bureaus since the start of the reform,
operating in the cash FX market. Five of these bureaus are already operational, introducing
new competition and an improvement in services available to customers.
• NBE has revised the guidance on FX fees and commissions, allowing banks to exclude some
fees from their posted prices (in line with international practice), noting an expectation that
bid-offer spreads should generally not exceed 2 percent, and requiring transparent
disclosure of all FX related fees and commissions.
• The NBE issued a letter to banks for the settlement of dividends that were accumulated
before the FX reform, clarifying that banks shall entertain such dividend repatriation requests
by distributing them equally over a period of 18 months.
• We have ended the allowance for the importation of certain commercial goods through the
Franco Valuta import system. The allowance was intended to alleviate inflationary pressures
during the first stages of reform, and is no longer needed, while this adjustment will prevent
abuse of the system by sourcing FX from the parallel market, especially considering that FX
availability at banks has significantly improved.

17. We will continue to take measures to ensure a sustained switch to a flexible exchange
regime. These measures will support the supply response to the FX reform and improve
intermediation and market functioning in the FX market:
• Monitoring of the FX market and enforcement of the new FX directive are being stepped up.
An inspection team at the NBE was established and the first consolidated on-site inspection
report for the commercial banks has been finalized. NBE will implement an internal
monitoring manual, strengthen both off-and on-site inspections with special focus on
ensuring that banks are complying with the Foreign Exchange Market Operation Code of

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Conduct. We will continue our efforts to improve understanding of the FX directive,

including by posting FAQs on NBE’s website by end-December 2024.
• With technical support from the IMF, a FX market survey covering both banks and the real
sector will be completed by end-2024 to identify impediments to efficient FX market
functioning and deepening. The survey (as well as inspection reports) are expected to
highlight areas for additional policy measures.
• By March 2025, we will review the maximum amount allowed for advance payment of
imports that does not require importers to submit a foreign bank guarantee.
• With IMF technical assistance, NBE will (i) review the methodology for the calculation of the
daily reference rate with a view to also including inter-bank FX transactions in the calculation
and (ii) begin publishing regular data on interbank market transactions by end of March
2025. In addition, NBE will begin work with the commercial banks and stakeholders to adopt
an FX trading platform and finalize the RTGS payment system to enable the settlement of
interbank FX transactions domestically to support FX market liquidity and inter-bank FX
market development.
• NBE is following up on banks’ implementation of their plans to comply with net open
position (NOP) regulatory thresholds by end-June 2025. Most banks are already in
compliance. With IMF technical assistance, we will strengthen the measurement of NOPs to
better capture banks’ FX risk profiles, revise the NOP prudential regulation, and ensure
adequate enforcement.
• NBE is collecting information on banks’ current practices of opening LCs. We will work
together with banks to establish service standards for opening LCs, including processing
time and margin requirement, by end-February 2025.
• Outreach to bring in more FX through official channels continues. We will assist in bringing
overseas money transfer operators into the official market by facilitating contacts with
banks, with due regard to know-your-customer and financial integrity considerations. In
collaboration with banks, an information campaign to attract remittances will be extended,
to countries with sizeable Ethiopian diaspora populations.
• We will completely phase out surrender requirements by the end of the program, at a pace
determined by the development of FX market liquidity.

18. Current account transactions will be further liberalized. Three exchange restrictions out
of six long-standing restrictions identified in the recent IMF Article VIII assessment will be removed
during the program period. A specific timeline for removal of (i) the imposition of hard ceilings on
access to and use of FX for travel purposes and (ii) the prohibition of access to and use of FX for the
purposes of cross-border payment of moderate family remittances will be established based on a
study completed prior to the third ECF review. The phasing out of the NBE exchange commission,
which constitutes a significant portion of NBE’s income, will be carefully aligned to NBE’s operating
balances and its timing determined as part of the NBE capital adequacy study. The two additional
exchange restrictions—namely, the tax clearance certificate requirement for repatriation of dividend

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and other investment income, and the requirement to provide a clearance certificate from the NBE
to obtain import permit—will be studied jointly with the other affected public authorities to identify
alternative solutions that do not give rise to exchange restrictions.

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

20. 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) has been 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 first MPC meeting is expected to take place in late December. Regular meetings will take place
every quarter following a published calendar, with the scope to convene more frequently if needed
depending on monetary and financial conditions. An update on the monetary policy stance will be
published following each MPC meeting. The MPC will play an advisory role until it assumes its
formal role as set out in the amended NBE Establishment Proclamation. To continue to support the
transition to the interest rate-based monetary policy framework, NBE is also: (i) upgrading the
market infrastructure of the real-time gross settlement system; (ii) finalizing the dematerialization of
government securities; (iii) enhancing liquidity forecasting capabilities; and (iv) developing a
comprehensive and transparent monetary policy communication strategy.

21. NBE began 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 continued to conduct regular full allotment Open Market
Operations (OMOs) at the policy rate to align banking sector liquidity with the monetary policy
stance. In October 2024, we also implemented an emergency liquidity assistance framework to
provide temporary liquidity to solvent banks facing strains, and we will continue efforts to establish
a comprehensive collateral framework. Our monetary policy measures will also be supported by the
deployment of a central securities depository (CSD) by end-December 2024.

22. To support the monetary policy framework, we continue to take steps to enhance the
management of liquidity in the financial system. In late October 2024, we launched the Interbank
Money Market, including a trading platform, which banks have been using to manage their liquidity
more efficiently. Initial transaction growth has been strong, with weighted average rates falling

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between the OMO and overnight borrowing rate of the NBE, as expected. We merged banks’
payment and settlement accounts with their reserve accounts in August 2024 and we are reviewing
the reserve framework to ensure more efficient liquidity management in the banking sector. We will
review directive FIS/03/2020 on maximum Cash Withdrawal Limits with a view to assessing its
impact on liquidity by March 2025.

23. We will maintain tight monetary and financial conditions to anchor exchange rate and
inflation expectations with the objective of ensuring price stability. We will discuss the
monetary policy stance and liquidity conditions regularly in the newly constituted MPC; we
anticipate an inaugural meeting to take place in the next weeks, with at least one additional meeting
before end-March 2025, depending on developments in inflation and broader economic conditions.
NBE’s policy rate will be the key instrument to signal the policy stance and it will be calibrated as
needed to be consistent with the objective of achieving low and stable inflation. We will also review
the settings of direct instruments—such as the credit growth cap—and reserve requirements at each
MPC meeting, with a view to ensuring monetary and financial conditions remain tight, which is
appropriate given current market developments. We will seek to end quantitative restrictions on
bank lending, and we plan to phase out the credit cap on private sector lending by end-September
2025. We reaffirm our commitment to adjust the policy rate to achieve a positive real policy rate in
the first quarter of 2025, based on projected inflation using a measure that is developed in
consultation with the IMF staff. We will maintain a close dialogue with the IMF on monetary policy
setting, consulting as needed if inflation deviates from the baseline projection and standing ready to
take additional monetary policy measures to manage inflation expectations as needed.

24. We will continue to improve T-bill market functioning and price discovery, so as to
increase domestic resource mobilization and strengthen monetary policy transmission. In
November, we stepped up communication efforts with market participants to ensure the rules of the
T-bill market are well understood, including the absence of restrictions on bids. Although T-bill
auctions have remained undersubscribed, interest rates have moved closer to the monetary policy
rate. Acknowledging the need for significantly increased participation in the T-bill market, we will
continue efforts to build financial sector capacity and improve communication with market
participants, which will complement efforts to expand the investor base, with a particular focus on
the banking and domestic corporate sector. With the support of both IMF and World Bank technical
assistance (TA), we will build further capacity in cash and domestic debt management at the Ministry
of Finance (MoF). We aim to start publishing a regular issuance calendar in July 2025 and to support
efforts to develop the local currency bond market (LCBM). To improve competition in the T-bill
market, we are partially removing the eligibility of T-bills toward meeting the reserve requirement
for CBE by 50 percent by end-December 2024, and we will fully remove this requirement by end-
September 2025. We stand ready to take further actions to improve the T-bill market over coming
months.

25. 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

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the Treasury bill and bond market develops, a government short-term credit facility has been
created. As per the 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) also continue to
support tighter monetary conditions, with a significant impact on overall credit demand given the
large share of government and public enterprises in total credit.

26. 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 (NBE’s mandate, autonomy, decision-making structure, external
audit, and transparency). Public hearing of the new law has commenced, 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 the
tender’s technical and international practice requirements. Following completion of the selection
process, the new external auditor of the NBE was appointed on November 9, 2024, and NBE is
expected to publish financial statements for 2021/22 and 2022/23 (modified structural benchmark,
end-March 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.

27. An assessment of NBE’s capital will be undertaken before end-June 2025. 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 assessment could inform the amount and instrument used for recapitalization if
needed with the NBE Proclamation providing a legal basis.

E. Fiscal Policy

28. 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.

29. 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

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that of the budgetary federal government, underpinned by continued restraint in borrowing by

regional governments.

30. A Supplementary Budget for FY2024/25, in line with program commitments, has been
adopted. 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
0.6 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).

31. 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.

32. 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-
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.

33. 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 has been completed and the provider
selected, with the contract to be finalized before end-December 2024. 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

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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.
• Revenue gains from property tax reforms are on track to yield 0.1 percent of GDP in
FY2024/25, which has been realized under the existing legal framework through revision of
tax base assessments and stepped-up enforcement. The new Real Estate Property Tax
Proclamation is expected to be discussed in parliament by end-December, 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.

34. We are advancing the next phase of revenue mobilization reforms, in line with the
National Medium-Term Revenue Strategy, including:
• The Ministry of Finance (MoF) has drafted a directive to streamline and eliminate tax
exemptions, including VAT, excise, customs duties, and surtax, granted for imported
intermediate inputs for new local and foreign investment projects. A new performance-
based duty drawback mechanism will be restricted to iron bars used in the construction
industry. These reforms are projected to have a net full-year revenue impact of 0.1 percent
of GDP, with implementation beginning in June 2025.
• MoF has initiated a corporate income tax (CIT) regime assessment, with technical assistance
from the UK Foreign, Commonwealth, and Development Office and the World Bank. The
assessment will identify compliance and tax policy gaps in the CIT regime, with costing of
policy reform options expected to be completed by March-2025. Legal amendments,
targeting a tax policy revenue impact of 0.3 percent of GDP, will be introduced with
implementation of the 2025/26 Budget. With nearly two thirds of businesses reporting no
taxable profit, a minimum alternative tax remains one of the policy options to raise revenues,
reduce avoidance, and combat evasion.
• We have finalized assessment of the existing motor vehicle fees and charges, based on
which we will prepare a proposal to the two chambers of parliament to decide on the tax
revenue assignment of the tax between federal and regional governments. As an interim and
alternative mechanism to realize the MTRS target (0.1 percent of GDP from 2025/26), we are
considering a review of the annual motor vehicle ownership fees.
• We have undertaken a study to assess personal income tax (PIT) reform options, with a
primary focus on the minimum exemption threshold and possible streamlining of the
bracket structure. We expect new PIT structure to be implemented from FY2025/26, with the

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policy impact guided by fiscal space and equity considerations. Revenue losses will not
exceed 0.2 percent of GDP.
• We have developed policy options to consolidate presumptive tax rates. The structure of the
tax will be amended by a MoF directive, with implementation from next year. The current
proposal relies on regional government revenue collection, remaining a turnover based tax,
with fewer brackets and no differentiation among business activities. This policy reform will
be revenue neutral, with revenue gains expected from administration and compliance.

35. 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, and will inform tax administration reform priorities. We will publish the finalized
report by end-December 2024. 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,
(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.

36. The FY2024/25 Budget contains a spending package of 1½ percent of GDP that will
help mitigate the adverse social impact of FX reform. An extra contingency of up to 30 billion
Birr has been allocated in the supplementary budget for social spending to manage rising
international commodity prices. This contingency will only be utilized if tax revenues align with the
annual budget plans. 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

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supplementary budget, increases from about 0.1 to 0.5 percent of GDP per year (indicative
target, IT). The PSNP disbursement plans foresee budget allocations in line with the
program’s indicative targets. 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 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 0.05 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 at 0.1 percent of GDP. 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, pump prices were further raised in early October by
8 percent for diesel and by 10 percent for other fuels. Jet fuel prices were fully adjusted to
cost recovery in November, and excise taxes are transferred to the federal budget. Favorable
international fuel prices have offset the fiscal impact from the initial two months of forgone
pump price adjustment. To smooth the impact of price increases on the public, we have
adopted a plan to raise fuel prices quarterly and gradually eliminate the Fuel Price
Stabilization Fund (FPSF) component in the fuel cost build-up formula by January 2026. The
legacy debt of ESPE resulting from exchange rate losses will be resolved after January 2026;
the MoF will prepare an action plan for this. The FPSF price component will be recalculated
and updated monthly, as the EPSE selling price net of EPSE monthly average actual import
costs, taxes assessed at full statutory tax rates, and other regulatory fees. During this
transition EPSE will continue to retain fuel taxes, which will reduce the direct call on the
budget. The supplementary budget net cash transfer to EPSE, allocated to rebuild the fuel
price stabilization buffers, will be capped at 70 billion Birr (0.5 percent of GDP) in FY2024/25.
Our plan is to continue increasing fuel prices to the consumer above cost parity to clear the
legacy subsidy debt (46 billion Birr as of end-June 2024), rebuild a surplus at the Fuel Price
Stabilization Fund, and eliminate the fuel price subsidy net of taxes by end-2025. We will
continue to provide targeted fuel subsidies for public transportation that will cushion the
impact for vulnerable households across the country. 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 70 billion Birr (0.5 percent of GDP) in
FY2024/25. Even though under-fertilization remains among the most important factors
behind relatively low production yields in wheat and other cereals, addressing suppressed

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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 0.5 percent of
GDP will suffice to retain the pre-reform farmgate price subsidy rate of about 30 percent of
the full cost. We will reduce fertilizer subsidy costs to 0.3 percent of GDP by FY2025/26.

37. 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.

38. We will settle legacy fuel subsidy debt resulting from exchange rate losses and
prevent the reemergence of similar liabilities. Fuel subsidy reform between December-2021 and
the start of FX reform eliminated about 1 percent of GDP in extrabudgetary fiscal costs, helping
reduce the large stock of subsidy related public debt. In the first quarter of 2026 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 138 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 EPSE has sufficient Birr liquidity, it
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 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.

39. 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.

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• 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 once it is finalized. 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.

40. 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
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.

41. 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). To strengthen
transparency, internal controls, and public investment management, we will discontinue the current
practice of earmarking a portion of fuel VAT for the Road Fund and allocate federal government
funding through the budget (Structural Benchmark, June-2025). New roads will continue to be

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financed through the federal budget. 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

42. Supported by the financing provided by the IMF-supported program, we will work
toward reaching an agreement in principle (AIP) with official creditors by the time of the
second review and with bondholders in parallel. We made a formal debt treatment proposal to
the Official Creditor Committee (OCC) on October 16, 2024. On October 23, the co-chairs of OCC
offered us reassurance that “sufficient progress towards an agreement in principle by the time of the
second review” is being made. Subsequently, after AIP, a Memoranda of Understanding (MoU) 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
OCC. During the IMF Annual Meetings in October 2024, we held a follow-up meeting with the
Eurobond creditor committee (representing more than 40 percent of the principal).

43. 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).

44. 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) 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 PV of contracting and
guaranteeing new PPG external borrowing (see TMU). An exception to the zero limit on non-
concessional borrowing was granted by the IMF for a new loan to complete the Koysha
hydroelectric dam project at program approval. Details of all new contracted loans will be
communicated to the IMF. Finally, we remain committed to pursuing a disciplined fiscal policy and
robust economic and export growth to reduce vulnerabilities to debt problems in future, particularly
considering that there will be less restructurable debt after the debt treatment is concluded.

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45. 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 Ethiopia’s 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.

46. 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. Direct advances from the NBE
totaling 242 billion Birr at end-June 2024 were converted into a long-term bond with a
maturity of 25 years and an interest rate of 3 percent in July 2024, pending review of NBE’s
capital needs.
• 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). 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 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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47. 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

48. 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) in 2018, and Ethiopian Investment Holdings (EIH) in 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, were
published (SB, end-September 2024). Consolidated financial statements for EIH for
FY2022/23 are expected to be completed by February-2025. We are considering improving
SOE management and development by consolidating management under EIH.
• 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.

49. 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

1The 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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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
transparent budgetary disclosure of and compensation for non-commercial services. Following the
recent absorption of PEHAA, EIH will continue its role as a commercially oriented shareholder on
behalf of the state for all but five SOEs, 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.

50. 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 first 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

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• 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
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

51. Building on the restructuring and recapitalization of CBE in July 2024, we are
implementing 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 (FSSP) 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.

52. We will implement a strategic plan to maximize DBE’s development impact, with
support from the FSSP, by the end of 2025. The strategic plan will include a revised business
model focused on wholesale lending and a market-based funding strategy. Implementing a
reformed risk management and governance framework aligned with global best practices for
development finance institutions and the NBE's Corporate Governance Directive is a key component.

53. NBE is strengthening the supervisory and regulatory framework for banks. We aim to
implement the Basel II framework, focusing on Pillar 1 requirements, by December 2025 with the
support of IMF TA. With the support of World Bank TA, a risk-based supervisory framework will be
developed by end-June 2025, encompassing directives on internal controls, risk management and a
Risk Assessment Model (RAM). Supervisory guidelines aligned with Basel Committee standards will

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address governance, risk management, and climate-related financial disclosures by end-2026. In

addition, we will develop a robust financial stability framework, built on a Financial Stability
Department, a Financial Stability Committee, and enhanced reporting through macro-prudential
tools like stress testing and early warning systems.

54. 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
non-performing loans (NPLs), including with public entities, and appropriate recognition of non-
performing guarantees. As the banking system transitions to align with the new directive, we will
closely monitor NPLs and take appropriate regulatory action as needed. With the support of the
World Bank, we will conduct technical and operational assessments to support the development of a
Prompt Corrective Action Framework and a bank resolution regime.

55. The entry of new banks and the development of capital markets will help 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 to encourage foreign investment in the
banking sector, and for mobile money institutions.

56. We are developing the capital markets. Formalizing existing over-the-counter markets in
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. The sale of up to 10 percent of Ethio Telecom in an initial public offering will close at end-
January 2025, with 100 million shares offered to domestic investors via Ethio Telecom’s mobile
money platform, Telebirr.
• 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. The ECMA
has engaged with 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.

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I. Promoting Sustainable, Inclusive Growth

57. 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.

58. 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
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.

59. 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.

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J. Economic Statistics

60. 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 recently launched a new household expenditure survey, which will be carried out in four
quarterly stages over FY2024/25 and serve as a key input to updating our National Accounts and
Consumer Price Index statistics, including expanding information from more rural markets. 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. Based on the household expenditure survey, we will update the consumption basket and
expand the coverage of the CPI by end-2025. Other priority areas include aligning data presentation
with BPM6 for external sector statistics and government finance statistics.

K. Risks and Contingencies

61. 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.

L. Program Design, Financing, and Monitoring

62. 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.

63. The program will be monitored by the IMF’s Executive Board. After two reviews,
evaluation of progress in implementation of the policies under this program will henceforth occur
through semi-annual reviews of the quantitative performance criteria (end-December 2024 and end-
June 2025), indicative targets, and structural benchmarks, as presented in Table 1 and Table 2,
respectively. Detailed definitions and reporting requirements for all performance criteria and
indicative targets are presented in the Technical Memorandum of Understanding (TMU) attached to

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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 April 15, 2025. 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.

64. 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.

65. 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.

66. 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
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.

67. Accordingly, the government is requesting Board approval of the policies set forth in
the MEFP and disbursement of the third loan installment, totaling SDR 191.7 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,

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

68

June 2024 – December 2025

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(In millions of Ethiopian Birr, unless otherwise indicated)

1
end-Jun 2024 Aug. 16, 2024 end-Sep 2024 end-Dec 2024 end-Mar 2025 end-Jun 2025 end-Sep 2025 end-Dec 2025
Prel. Initial level Performance Criteria Performance Criteria Performance Criteria Indicative Target Performance Criteria Indicative target Performance Criteria

Prog. Actual Status Prog. Adj. Actual Status Prog. Prog. Prog. Prog. Proposed

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 -5,972 Met 69,000 95,000 106,000 76,000 105,000
includes grants and excludes interest payments) 2/, 3/
Net international reserves (floor, cumulative change since previous June, US$ millions) (end-Jun 2024 is for 1,242 Met
793 630 1328 Met 500 534 500 400 400 400 400
initial 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 N/A 153,542 Met 192,000 347,000 578,000 120,000 276,000
beginning of the current fiscal year)

Net NBE claims on the general government (ceiling, cumulative change since previous June) (end-June 2024 632,253 0 -10895 Met 0 N/A -6,727 Met 0 0 0 0 0
for 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 N/A 0 Met 0 0 0 0 0
enterprises (ceiling, US$ millions) 4/
Accumulation of external payment arrears by the general government, the NBE and public enterprises (ceiling, 0 0 Met 0 N/A 0 Met 0 0 0 0 0
US$ millions)

Indicative targets
Gross claims on public enterprises by commercial banks (ceiling, cumulative change since previous June) (end- 747,485 N/A N/A N/A 37,000 N/A -641,825 Met 74,000 110,000 147,000 50,000 95,000
Jun 2024 is for initial level) 3/, 5/
Government Contributions to Productive Safety Net Programme cash transfers (floor, cumulative sum of 9,000 N/A N/A N/A 6,500 N/A 2,370 Not Met 22,100 33,200 51,400 12,000 22,500
contributions since the beginning of the current fiscal year) 6/
Present value of external new debt (excluding IMF credit) contracted or guaranteed by the general government, N/A N/A N/A 2,000 N/A 248 Met 2,500 2,750 3,000 N/A 1200
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 1211 1,225 1419 1629 1839 201 401
Official external loans disbursed to the government (US$ millions, cumulative since previous June) 627 638 657 775 913 1,050 1,141 1281
Gross privatization proceeds (US$ millions, cumulative since previous June) 0 0 0 0 0 0 163 325

Sources: Ethiopian authorities and IMF staff estimates and projections.

1/Not all quantitative performance criteria and indicative targets were assessed at the First Review given data availability.
2/ Excluding on-lending from the general government.

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

4/ 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.
5/ For the IT on gross claims on public enterprises by commercial banks, the Dec. 2024-December2025 test dates exclude changes in claims related to CBE recapitalization.
6/ 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

Measure Rationale Board Approved Status

Target Date

1. NBE to implement an emergency liquidity assistance framework for financial stability Strengthen financial crisis End-September Not met;
purposes provided at the discretion of NBE to viable (solvent) banks with adequate and stability framework and 2024 implemented
collateral and a funding plan to recover the liquidity situation of the bank. support monetary policy with delay
implementation
2. NBE to submit to Parliament comprehensive draft legal amendments to the NBE Update and modernize End-December
Proclamation, to be prepared in consultation with IMF staff, with respect to the NBE’s governance of the NBE 2024
mandate, decision-making structure (internal check and balances and collegial
implementation of decisions), accountability, transparency, and autonomy.
3. The NBE to finalize and publish audited financial statements for 2021/22–2022/23. Update and modernize End-March 2025 Target date
governance of the NBE modified from
January 2025
4. Ministry of Finance to start publication of a mid-year review on the implementation of Strengthen fiscal End-April 2025
the budget as of the middle of the fiscal year and a quarterly budget execution report for transparency
prior quarter, both for Federal Government.

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

5. National Bank of Ethiopia to repeal directive (MFAD/TRBO/001/2022) obliging financial Reduce financial repression End-June 2025
institutions to buy Treasury Bonds effective immediately. and promote bond market
development
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6. Ministry of Finance to issue instruction to Ethiopian Petroleum Supply Enterprise to start Strengthen fiscal End-June 2025
remitting all federal fuel taxes to the Ministry of Revenue by December 2025. transparency and secure
budget revenue
7. Council of Ministers to submit draft FY2025/26 budget for the Federal Government in Ensure fiscal targets End-June 2025
line with IMF program’s macro-framework. consistent with program
objectives
8. To strengthen transparency, internal controls, and public investment management, Strengthen PFM internal End-June 2025 New
Ministry of Finance will allocate funding for the Road Fund through the Federal controls and public
Government budget. investment management
69

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Attachment II. Technical Memorandum of Understanding

Addis Ababa, December 18, 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.

B. 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).

C. 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).
• 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).

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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).

D. 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:
• Net external financing of the general government, excluding valuation gains and losses
and changes to on-lending to public enterprises, evaluated at actual exchange rates. 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.

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• 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.

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.

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• 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.

E. 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, 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. All foreign currency deposits of the general
government with the NBE will be excluded when calculating NIR. 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).
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.

F. QPC on Net Claims on the General Government by the NBE

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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.

G. 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.
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.

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H. 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.

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

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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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). Concessionally 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
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.

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

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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.

I. 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

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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.

J. 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. The
cumulative change in gross claims in public enterprises by commercial banks for FY2024/25 excludes
the reduction in claims related to recapitalization of Commercial Bank of Ethiopia.

K. 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.

L. 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
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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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.

M. 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.

N. 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
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

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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).

O. 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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Table 1. The Federal Democratic Republic of Ethiopia: Reporting Procedures to the IMF

Information Provider Periodicity and Due Date

Gross international reserves and foreign liabilities of the National NBE Weekly, within five business
Bank of Ethiopia (NBE), reported by the amounts in the original days of end of each week
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
commercial banks, including, but not limited to, Addis Ababa and the end of each month
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 government's MOF Monthly within six weeks of
cash contributions the end of each month
Stock of claims of the Ethiopian Petroleum Supply Enterprise on MOF Monthly within six weeks of
the Fuel Price Stabilization Fund the 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
underlying indicators of each quarter
Consolidated Budget Report of Federal and Regional Government MOF Quarterly within twelve
weeks of end of each
quarter
Monetary Survey NBE Monthly within six weeks of
end of each month

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Table 1. The Federal Democratic Republic of Ethiopia: Reporting Procedures to the IMF
(Continued)

Information Provider Periodicity and Due Date

NBE’s outstanding credit to private commercial banks, CBE and NBE Monthly within two weeks
DBE. of end of each month
Financial Soundness Indicators (aggregate and bank-by-bank), NBE Quarterly, within eight
including capital to risk-weighted assets, capital to assets, NPLs to weeks of the end of each
total loans, NPLs net of provisions to capital, return on assets, quarter.
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, term NBE Monthly, within 30 calendar
deposit rates. days
Credit data on distribution by sector (private/public); credit to NBE Monthly, within 30 calendar
enterprises (by economic sector); and credit to individuals (by days
purpose).
Bank-by-bank financial data of commercial banks and the DBE, NBE Quarterly, within eight
including balance sheets, income statements, net open foreign weeks of the end of each
currency positions, NPLs and liquidity positions broken down by quarter.
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
institution. weeks of the end of each
quarter.
Monetary policy operations and liquidity factors: weekly and NBE Monthly within 15 calendar
monthly balances. Detailed table including: (1) intervention on days
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$ amount in NBE Weekly, within five business
purchases and sales of foreign exchange in spot and derivative days of end of each week
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

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Table 1. The Federal Democratic Republic of Ethiopia: Reporting Procedures to the IMF
(Concluded)

Information Provider Periodicity and Due Date

Weekly US$ amount of trade volume, in interbank market and NBE Weekly, within five business
foreign exchange bureaus, respectively days of end of each week
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 dollars: NBE Weekly, within five business
total value transacted in US$, total number of transactions, days of end of each week
number of banks involved in transactions, average value
transacted in US$
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 and NBE Monthly, within six weeks of
financial account transactions end of each month

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

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REPUBLIC OF ETHIOPIA
SECOND REVIEW UNDER THE EXTENDED CREDIT FACILITY
December 18, 2024 ARRANGEMENT AND FINANCING ASSURANCES REVIEW––
DEBT SUSTAINABILITY ANALYSIS
Approved By The Debt Sustainability Analysis (DSA) was prepared
Hassan Zaman and Manuela by the staffs of the International Monetary Fund (IMF)
Francisco (IDA) and Annalisa and the International Development Association (IDA),
Fedelino (IMF) in consultation with the authorities.

The Federal Democratic Republic of Ethiopia: Joint Bank––Fund Debt

Sustainability Analysis 1
Risk of external debt distress In debt distress
Risk of overall debt distress In debt distress
Granularity in the risk rating Unsustainable
Application of judgement No

Ethiopia faces political, economic, and humanitarian challenges. Support from the
international community weakened notably during the two-year conflict in Tigray but is
now resuming. Bunching of debt service in the near to medium term and adverse
developments have led to the realization of debt repayment risks.

Ethiopia’s debt is assessed to be unsustainable, mainly due to protracted breaches of

exports-related external debt indicators and is based on a weak Debt Carrying Capacity
(DCC). 2 Following a missed Eurobond interest payment in December 2023, the country is
in debt distress. Timely implementation of the authorities’ reform agenda and debt relief
from external creditors are required to alleviate liquidity pressures and restore debt
sustainability. The authorities have committed to achieving a moderate risk of debt
distress rating by the end of the approved ECF arrangement. An Official Creditor
Committee under the G20 Common Framework (OCC) was formed in September 2021,
and agreed to suspend debt service due in 2023 and 2024 on November 9,2023.

1This preliminary analysis is based on the Joint Bank-Fund Debt Sustainability Framework for Low-Income
Countries (LIC-DSF) that was approved in 2017.
2 The downgrade to “weak” followed two successive weak signals in April and October 2022. The composite
indicator based on the October 2024 World Economic Outlook (WEO) and 2023 World Bank Country Policy
and Institutional Assessment (CPIA) data that was published in July 2024, is currently estimated at 2.47.
Ethiopia’s CPIA has trended down since 2020 and has been important contributor to the decline in the CI
score.

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Creditors provided financing assurances for a debt treatment consistent with the IMF-supported
program and agreement with the authorities on a term sheet for debt treatment is on track by the
second review. This assessment is based on the assurances provided by the co-chairs by letter to the
Ethiopian authorities as well as the OCC meetings held on December 4, which reviewed debt treatment
perimeter and the authorities’ request for extension of the debt service suspension. Further OCC
meetings on specific debt treatment proposals are expected in December 2024.

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A. Public Debt Coverage

1. Debt coverage under this Debt Sustainability Analysis (DSA) is consistent with the LIC–DSF
guidance and previous DSAs.3 In particular, the DSA includes Federal government debt, the central
bank’s debt to the IMF and two bilateral creditors, guaranteed nonfinancial public enterprises’ debt, and
non-guaranteed debt of Ethio-Telecom, a major telecommunication company.4 External debt is defined
according to the residency principle. Notwithstanding the comprehensive coverage, staff assumes a larger
contingent liability shock of 4.5 percent of GDP than the default level of 2 percent of GDP, to account for
additional risks associated with large state-owned enterprises (SOEs). Financial market shock is assumed at
5 percent of GDP, the default level.

Text Table 1. The Federal Democratic Republic of Ethiopia: Coverage of Public and Publicly
Guaranteed Debt and Parameters of Contingent Liability Shocks for the Tailored Stress Test

Public debt coverage Sub-sectors covered

1 Central government X
2 State and local government X
3 Other elements in the general government
4 o/w: Social security fund
5 o/w: Extra budgetary funds (EBFs)
6 Guarantees (to other entities in the public and private sector, including to SOEs) X
7 Central bank (borrowed on behalf of the government) X
8 Non-guaranteed SOE debt X

2. The coverage of debt statistics is comprehensive. The authorities publish domestic and external
debt statistics of the Federal government and SOEs on a quarterly basis.5 Debt reporting continues to
improve under the World Bank’s Growth and Competitiveness Programmatic Development Policy

3 The coverage differs from the official public debt data in two aspects: the DSA does not include Ethiopian Airlines

but includes the deposits of two bilateral creditors at the central bank, as these deposits have the economic
characteristics of debt (interest rate and a regular debt-service schedule until maturity, and that a public entity is
responsible for servicing these debts) and meeting balance of payment needs.
4Ethiopian Airlines and Ethio Telecom are the only state-owned enterprises with non-guaranteed debt. Ethio
Telecom's debt service payments are added to revenue as a proxy for the company’s net income in the calculation of
external debt service to revenue ratio as total operating profit is larger than the debt payments. The inclusion of
Ethio Telecom debt service is a conservative estimate of its larger operating profit.
5 Debt bulletins are available on the Ministry of Finance website (https://www.mofed.gov.et/resources/bulletin/).

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Operation series, with expanded coverage of SOE domestic debt in the quarterly debt reports and the
publication of an annual debt report.6

B. Background

3. Ethiopia’s total public and publicly guaranteed debt as a share of GDP declined by about
14 percentage points between 2021/22 and 2023/24. Total public and publicly guaranteed (PPG) debt
stood at 34.4 percent of GDP at end-June 2024,
down from 40.2 percent of GDP a year before and
48.9 percent of GDP at the end of 2021/22. This
decline mainly reflected low external disbursements
combined with high nominal GDP growth, with the
external debt-to-GDP ratio declining by about
9 percentage points. The domestic debt-to-GDP ratio
also declined, rising less than nominal GDP. Debt
owed by the Federal government and the central
bank accounted for 78 and 6 percent of the total PPG
debt stock, respectively, with the remainder owed by
SOEs (16 percent).

External Debt

4. External debt accounted for 44 percent of total PPG debt as of end-June 2024. In 2023/24,
PPG external debt amounted to 15.1 percent of GDP, down from 18.1 percent of GDP a year before. The
decline mainly reflected lower disbursements to the
Federal government, as official bilateral and market
external creditors have mostly halted disbursements
in response to Ethiopia’s ongoing debt treatment
under the G20 Common Framework (CF) and debt
service standstill. The Federal government accounts
for about 66 percent of total external debt,
predominantly to the World Bank and other official
creditors. For the SOEs included in the DSA, the PPG
external debt ratio fell for the sixth successive year.
This decline is due largely to active measures taken
by the authorities to contain SOEs’ external
borrowing, including no new contracting of non-concessional external debt, consistent both with the
International Development Association’s Sustainable Development Financing Policy and a continuous
performance criterion under the 2019 ECF-EFF program.

6 Further information about the transparency of Ethiopia’s debt reporting practices, including changes over time, can
be found on the World Bank’s Debt Reporting Heatmap (https://www.worldbank.org/en/topic/debt/brief/debt-
transparency-report).

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Text Table 2. The Federal Democratic Republic of Ethiopia: Public and Publicly
Guaranteed Debt Profile

Debt stock 1/ Debt Service 2/

(as of end-June 2024) 2024/25 2025/26 2026/27 2024/25 2025/26 2026/27

In US$ In percent of In percent of In US$ million In percent of GDP

million total GDP
Total 70,486 100.0 34.4 5,497 5,855 6,117 4.2 4.1 3.7
o/w Federal government 55,019 78.1 26.8 4,396 4,266 4,323 3.3 3.0 2.6

External 30,842 43.8 15.0 2,969 2,248 2,399 2.3 1.6 1.5

International financial institutions 15,554 22.1 7.6 708 567 607 0.5 0.4 0.4
IMF 482 0.7 0.2 229 59 58 0.2 0.0 0.0
World Bank 12,090 17.2 5.9 379 401 437 0.3 0.3 0.3
AfDB/AfDF 2,208 3.1 1.1 56 60 65 0.0 0.0 0.0
Others 774 1.1 0.4 45 46 47 0.0 0.0 0.0
o/w IFAD 430 0.6 0.2 13 15 16 0.0 0.0 0.0

Bilateral official creditors 3/ 4/ 12,236 17.4 6.0 761 1,335 1,310 0.6 0.9 0.8
Paris Club 1,925 2.7 0.9 177 191 190 0.1 0.1 0.1
o/w Italy 531 0.8 0.3 73 75 69 0.1 0.1 0.0
o/w Korea 366 0.5 0.2 0 0 1 0.0 0.0 0.0
Non-Paris Club 10,311 14.6 5.0 584 682 1,065 0.4 0.5 0.6
o/w China 5,175 7.3 2.5 335 632 603 0.3 0.4 0.4
o/w UAE 3,009 4.3 1.5 48 95 93 0.0 0.1 0.1
Bonds 1,066 1.5 0.5 1,099 0 0 0.8 0.0 0.0

Commercial creditors 4/ 5/ 1,986 2.8 1.0 401 346 482 0.3 0.2 0.3

Domestic 39,644 56.2 19.3 2,527 3,606 3,719 1.9 2.5 2.3

Held by residents, total 39,644 56.2 19.3 2,527 3,606 3,719 1.9 2.5 2.3
T-bills 6/ 7,811 11.1 3.8 … … …
Commercial banks 2,883 4.1 1.4 … … …
Non-bank financial institutions 4,929 7.0 2.4 … … …
Bonds 7/ 12,866 18.3 6.3 … … …
Central bank 7,563 10.7 3.7 … … …
Loans 8,815 12.5 4.3 … … …
Central bank direct advance 4,221 6.0 2.1 … … …
Commercial banks 4,594 6.5 2.2 … … …
Transferred to LAMC 10,152 14.4 5.0

Held by nonresidents, total 0 0.0 0.0 … … …

Memo Items:

Collateralized debt 8/ 0 … … … … …
Contingent liabilities 9/ 0 … … … … …
Nominal GDP (US dollar, end of period) 205,004 … … … … …
Sources: Ethiopian authorities; and IMF staff estimates and projections.
1/ Consistent with the DSA coverage and may differ from official debt statistics on external debt.
2/ Includes roll-over of T-bills.
3/ Includes loans backed by export credit agencies.
4/ Includes pre-HIPC arrears waiting to receive HIPC comparable treatment.
5/ Loans from commercial banks and credit suppliers non-backed by ECAs and loans backed by China export credit agency.
6/ Marketable T-bills issued under auctions since December 2019.
7/ Includes previously issued short-term debt (direct advance and T-bills) that were converted into bonds.
8/ No collateralized debt is reported.
9/ No significant contingent liabilities have been identified, with the debt perimeter comprehensive encompassing non-guaranteed SOEs debt.

• The bulk of external debt is debt to official creditors. 7 IDA and official non-Paris club
creditors accounted for about 39 and 33 percent of PPG external debt, respectively.

7 Ethiopia has pre-HIPC arrears to Libya, Russia, and the former Yugoslavia, totaling about US$525 million as of end-
June 2024, which are deemed away. Furthermore, there are about US$32 million worth of external arrears to
commercial creditors from the former Czechoslovakia, India, Italy, Bulgaria and the former Yugoslavia, all pre-dating
the 1990s, which the authorities are also making good faith efforts to resolve.

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Non-official creditors accounted for 10 percent of PPG external debt, including a

US$1 billion Eurobond maturing in December 2024 and SOE debt backed by China’s export
credit agency, which was classified as debt to official creditors under the previous DSA.
• IDA financing provided positive net transfers of US$1.5 billion in 2023/24, from
US$1.7 billion and US$1.1 billion in 2022/23 and 2021/22, respectively. Approved
arrangements amounted to US$3.2 billion in 2023/24 (see WB website).
• The IMF Executive Board approved a blended ECF–EFF arrangement of SDR 2.1049 billion
(700 percent of quota) 8 in December 2019, of which Ethiopia drew down SDR 223.85 million.
In addition, following the COVID-19 shock, emergency financing was provided through a
Rapid Financing Instrument for SDR 300.7 million (100 percent of quota or 0.4 percent of
GDP) in April 2020. Debt service relief of obligations under the Catastrophe Containment
and Relief Trust was provided until April 13, 2022 (about SDR 14 million).
• Ethiopia also received debt service relief via the G20 Debt Service Suspension Initiative
(DSSI), for about US$220 million over May 2020–June 2021. Ethiopia did not seek debt relief
under the July–December 2021 phase of the DSSI.
• Principal repayments of bilateral deposits at the National Bank of Ethiopia (NBE) were
reprofiled in 2020/21, for total relief during 2022/23–2025/26 estimated at US$1.3 billion.
The authorities have confirmed that there is no collateralized debt outstanding.

5. The authorities requested debt treatment under the CF in February 2021 and the Official
Creditor Committee (OCC) was formed in September 2021. The request was to strengthen debt
sustainability and improve the risk of debt distress rating to moderate by the end of the 2019 ECF-EFF
arrangements, consistent with the Fund’s exceptional access criteria. This requirement will remain under the
current Fund-supported program. Eleven OCC meetings have already taken place, with the last one held in
December 2024.

6. A standstill agreement was reached with official creditors in November 2023, suspending
debt service due in 2023 and 2024. The debt service suspension is retroactive to January 1, 2023, and
therefore resolves official arrears that had accumulated earlier. Ethiopia defaulted on its Eurobond
obligations by missing coupon payments totaling US$66 million in December 2023 and June 2024. The
authorities have begun restructuring negotiations with bondholders.

Domestic Debt

7. The domestic debt to GDP ratio declined to 19.3 percent of GDP at end-June 2024. With SOE
debt transferred to the Liability and Asset Management Corporation (LAMC) classified as government debt
(5 percent of GDP at end-June 2024), the Federal government accounted for 87 percent of total domestic
debt. Meanwhile SOE domestic debt fell from 13 in 2020/21 to 2.4 percent of GDP to end-June 2024.

8Total access under the 2019 ECF-EFF arrangements were modified to 650 percent of quota via a reduction in the
EFF access at the time of the Rapid Financing Instrument approval in April 2020 to comply with applicable policies on
annual access limits. At the time of program approval in December 2019, PRGT access was subject to a hard cap of
300 percent of quota (which was removed in July 2021), hence the need for blending with GRA resources.

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• Around one third of the Federal

government’s domestic debt is legacy
debt issued at well below market rates,
including a long-term bond resulting
from the conversion of past direct
advances from the NBE, and debt issued
for purposes of bank recapitalization.
With scarce external financing, the
government continued to rely mainly on
domestic borrowing in 2023/24 through
direct advances from the NBE and
issuance of Treasury bills (T-bills).
• Treasury bill auctions began in December 2019 at the time of the approval of the ECF-
EFF arrangements. As of end-June 2024, the stock of T-bills stood at 3.8 percent of GDP
down from 3.9 percent of GDP at end-June 2023. The weighted average yield, though still
negative in real terms, has gone up (9–11 percent in 2023/24 from 1−2 percent offered on
non-market instruments in the past). The stock of advances from the NBE increased to
2.1 percent of GDP at end-June 2024 from 1.5 percent of GDP at end-June 2023. The
authorities reintroduced some financial repression measures, including mandatory
commercial bank purchases of bonds issued by the Development Bank of Ethiopia
(August 2021) and of non-marketable 5-year government bonds (November 2022).
• Domestic SOE debt is highly concentrated. At end-June 2024, the Commercial Bank of Ethiopia
(CBE), a large public sector bank, held virtually all SOE domestic debt including debt that was
transferred to LAMC. More than 90 percent of this debt was owed by three troubled SOEs that
were not regularly servicing their loans, which were publicly guaranteed. These loans were being
systematically renewed and guarantees were not made effective.
• The authorities established LAMC to manage the SOEs’ debt burden. In August 2021, SOE
domestic debt of nearly ETB 400 billion (9.4 percent of GDP) was transferred to LAMC, classified by
staff as an extra-budgetary government agency, which in turn made repayments to the CBE using
the local currency proceeds from the first telecom license auction held in late fiscal year 2020/21
(US$850 million). Debt transferred to LAMC is treated as government debt. Outstanding debt
carried by the agency increased to ETB 582 billion as of end-June 2024, from ETB 540 billion as of
end-June 2023, as arrears on interest payments were capitalized.
• Domestic debt service costs are expected to rise over the medium term. As the authorities
continue to develop domestic debt markets and reduce financial repression, domestic financing
costs are expected to rise, while providing a more reliable source of financing. The steep rise in the
domestic debt service to revenue ratio (Figure 6) is partially explained by the authorities’
commitment to reach positive real monetary policy rates by March 2025 and to rely on market-
based financing (primarily short-term instruments in the near future). Interest rates are expected to
moderate over time as declining inflation results in lower nominal yields, while bond market
development will allow for a higher proportion of borrowing at medium- and long-term maturities.

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In the near term, higher-than-forecast increases in funding costs and difficulties in rollover are risks.
An increase in revenue mobilization, supported by tax policy measures, will reduce these risks, and
help stabilize the debt service to revenue ratio.
• Domestic debt markets will continue to deepen. The IMF-World Bank assessed the stage of
development of the local currency bond market in October 2023 and have proposed a reform plan
to the authorities. The key stakeholders are due to agree next steps to begin the implementation
of this reform plan in coming weeks with the support of IMF-WB TA. It is expected that the money
market and primary market will be the focus of the initial reform agenda. Possible concrete steps,
accompanied by a move towards market determined interest rates, include improving the issuance
planning process and establishing the medium-term debt strategy.

C. Outlook and Key Assumptions

The DSA builds on the macroeconomic trajectory envisaged under the Fund-supported program that
was approved in July 2024. This involves a full transition to market-determined exchange rate with
positive effects on the current account and FDI, as well as a revenue-driven fiscal consolidation with
safeguards on pro-poor spending. The transition to a flexible exchange rate regime has advanced well.
The official exchange rate more than doubled since the reform, and there has been a significant
narrowing of the parallel market premium, which has stabilized in single digits. FX availability has
improved, with no evidence of a macroeconomically significant backlog in FX demand. Bid-offer
spreads have narrowed, and an interbank FX market has begun to operate, with growing volumes.

8. The near-term outlook is challenging (Text Table 3).

• Growth has moderated but has held up overall. Average growth has fallen to 6.8 percent
during 2019/20–2023/24 from over 9 percent per year in the decade to 2018/19 and was
8.1 percent for 2023/24. Favorable rainfall and expansion of irrigated crop-production have
supported agricultural output, while uptick in electricity and mining bolstered industry sector
growth.
o Growth in 2024/25 is projected at 6.6 percent, with potential uncertainties linked to
the transition to market-determined exchange rate offset by improving agricultural
conditions and the easing of import shortages. Over the medium term, the
competitiveness and allocative efficiency gains from exchange rate unification
(reduction in policy uncertainty, correction of overvaluation, and better FX
availability) and stronger policy framework (higher spending financed with domestic
revenues and concessional external financing and a stable monetary policy
framework with positive real interest rates) will support trend growth of 7.5–
8 percent.
o Between 2025/26–2033/34, average real GDP growth is projected at 7.3 percent,
slower than historical rates of around 10 percent per annum over the two decades
prior to 2019. The long-term projection reflects demographic factors (the median
age is below 20 years) and expected productivity gains, including from reforms and
economic transformation.

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• Inflation has been relatively stable at high levels, with disinflation expected to gather
pace in the medium term. The authorities are adopting an interest-rate based monetary
policy framework, with low and stable inflation as the policy objective. Inflation declined
moderately in 2023/24, with non-food inflation declining in response to fiscal and monetary
tightening. Inflation has been below expectations in the first four months of 2024/25.
Headline inflation fell to 17 percent in November from 18-19 percent in September and
October, with food and non-food inflation declining. The impact of the exchange rate reform
on inflation has so far remained contained. Gradual adjustment of key administered prices
(fuel, fertilizers, electricity), price stabilization measures (food, medicines) have helped
contain price increases.
o Inflation is expected to peak around 25 percent in mid to late-2025 reflecting the full
impact of the FX passthrough, and to reach single digits by 2028. The total impact of
the passthrough on inflation has been and is expected to remain limited due to the
low share of imports that were occurring at the official exchange rate in private
consumption expenditure and evidence that price formation using the parallel
market exchange rate is consistent with international prices. Tightening monetary
policy by eliminating monetary financing and moving to positive real interest rates
will help contain the second-round impact on inflation. Measures to mitigate the
impact of price adjustments of essential imports (fuel, fertilizer, and medicines) will
smooth the impact of exchange rate changes.
• The current account deficit is expected to increase in the near term, before narrowing
in the medium term. The move to market-clearing exchange rate in 2024/25 and
international financial support are expected to alleviate FX shortages and help rebuild
international reserves from low levels. The current account deficit is expected to rise at first
before settling at around 2.1 percent of GDP in 2027/28.
o Imports of goods are forecast to increase from 8.8 percent of GDP in 2023/24 to
14.5 percent of GDP in 2024/25 due to FX shortages becoming less acute. As pent-
up import demand is gradually cleared, imports of goods are expected to ease to
12.8 percent of GDP in 2027/28. As price and substitution effects weigh more,
imports are expected to decline as a proportion of GDP. Imports have reacted
relatively slowly to the exchange rate unification as a significant part of transactions
were already completed at the parallel rate, while transactions that were completed
at the official rate were for essential goods with relatively inelastic demand.
Materialization of the pent-up demand and higher project financing from external
creditors would both contribute to the rise in the goods imports-to-GDP ratio.
o Goods exports are forecast to increase from 1.8 to 3.5 percent of GDP between
2023/24 and 2024/25. Actual export performance in 2023/24 was somewhat
stronger than projected in the previous DSA. Trade data for Q1 2024/25 suggests an
initial substitution effect response to FX reform including in gold and coffee exports.
Exports of goods in Q1 2024/25 registered an 81 percent year-on-year increase,
supported by a six-fold increase in gold exports and a 47.8 percent increase in coffee
exports. The increase in gold exports reflects production moving to official from

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informal export channels in response to improved price incentives. The increase in

coffee exports is mainly due to inventory sales and a shift from the domestic to
export markets following exchange rate reform. Goods and services exports are
assumed to remain around 10 percent of GDP over the medium term after near
doubling from 5.6 percent of GDP in 2023/24 to 9.6 percent in 2024/25, given
Ethiopian Airlines strong prospects and expected positive effects from the exchange
rate unification such as the diversification of export products and destinations.
Considering the high GDP deflator, this is mirrored in nearly a doubling of exports in
US$ over the medium term. As continued growth will require new investment, and
previous projections already include a substantial increase in exports, medium-term
projections are unchanged.
o Private transfers (remittances and NGO transfers) are expected to recover to
historical levels of about 5 percent of GDP, reacting positively to the exchange rate
reform, paired with the removal of current account restrictions, which would reduce
uncertainty and costs, incentives for informal transfers, and fears associated with the
imposition of restrictions. Remittances in Q1 2024/25 increased by 26 percent year-
on-year.
• Foreign direct investment (FDI) is projected to recover as FX reforms take hold. The
proceeds from the partial privatization of Ethio Telecom, the auction of the second telecom
license as well as potential privatization of 8 sugar factories are assumed to lead to inflows
of US$650 million in 2025/26. Moreover, the DSA does not include future telecom
investments from private foreign companies, which the authorities estimate could add
around US$8 billion in additional foreign investment over the next 10 years. Over the
medium term, FDI is expected to settle at around 3.0 percent of GDP, consistent with pre-
COVID trends.
• Revenue mobilization will anchor debt sustainability while safeguarding humanitarian
and pro-poor spending. The general government primary deficit is expected to narrow
from 1.4 percent of GDP in 2023/24 to 0.7 percent of GDP in 2027/28, having already
declined from a peak of 3.5 in 2021/22. Consolidation will be driven by tax revenue
measures, while pro-poor spending will increase, and capital expenditure will partially
recover to meet reconstruction needs.

9. The main risks to the outlook stem from domestic policy slippages, potential social
discontent, and security challenges. Reform fatigue due to political and social pressures, could lead to
delay in or reversal of policy measures. Macroeconomic conditions could threaten social stability through
continued shortages or further increases in prices for essential goods, or by an expectations-led inflation-
depreciation spiral arising from exchange rate reforms. Recurrent volatility in global commodity prices also
poses a risk to the outlook, as do potential delays in the debt restructuring process. Deterioration in the
domestic security situation could renew economic disruption and derail international support. Intensifying
spillovers from regional conflicts also pose downside risks to the outlook. There is also upside potential if
security conditions continue to improve, strengthening the economic recovery and unlocking investment.

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Text Table 3. The Federal Democratic Republic of Ethiopia: Key Macroeconomic Assumptions

Fiscal year ending June 2024/25 2025/26 2026/27 2027/28 2028/29 Average
(2029/30-
2043/44)
Real GDP Growth (annual percent change)
Current DSA 6.6 7.1 7.7 8.0 7.8 6.2
2024 July ECF approval DSA 6.5 7.1 7.7 8.0 7.8 6.2

Current Account Balance (percent of GDP)

Current DSA -4.4 -3.0 -2.5 -2.1 -2.1 -2.3
2024 July ECF approval DSA -4.3 -3.2 -2.5 -2.0 -1.9 -2.3

Exports of goods and services (percent of GDP)

Current DSA 9.6 9.9 10.0 10.2 10.0 9.3
2024 July ECF approval DSA 8.9 9.6 10.0 10.4 9.9 9.3

Exports of goods and services (annual percent change)

Current DSA 7.7 12.6 16.5 16.3 9.7 10.6
2024 July ECF approval DSA 7.9 15.0 17.3 17.0 7.1 9.4

Fiscal balance, including grants (percent of GDP)

Current DSA -1.7 -2.0 -1.9 -1.8 -1.6 -1.6
2024 July ECF approval DSA -1.7 -2.1 -2.0 -2.0 -2.0 -2.0

International reserves (billions of U.S. dollars)

Current DSA 3.1 5.3 7.3 10.4 11.7 21.8
2024 July ECF approval DSA 2.8 5.1 7.0 10.2 11.5 20.9

General government revenue (percent of GDP)

Current DSA 8.5 9.8 10.8 11.2 11.4 11.8
2024 July ECF approval DSA 8.3 9.8 10.8 11.2 11.4 12.0

Grant element of new external borrowing

Current DSA 35.1 43.5 41.3 31.5 48.3 51.4
2024 July ECF approval DSA 34.4 44.0 41.2 31.5 48.3 51.4

Nonconcessional debt disbursements (billions of U.S. dollars)

Current DSA 0.05 0.20 0.27 0.30 0.09 0.00
2024 July ECF approval DSA 0.05 0.20 0.27 0.30 0.09 0.00

Source: IMF staff projections.

10. The fiscal adjustment is driven by tax policy measures, the recovery of the tax base from
recent shocks and by continued restraint of SOE borrowing. The DSA realism tools do not indicate that
the projected fiscal adjustment is unrealistic, with the primary balance adjustment below the top quartile of
the historical distribution of comparator countries. Furthermore, the risk that the adjustment proves
infeasible is mitigated by the specific measures under the program to raise revenues, including (i) the
broadening of the excise tax base and switching to a specific excise tax system with higher rates on alcohol,
tobacco, and fuels; (ii) removal of VAT exemptions; (iii) introduction of a motor vehicle circulation tax; and
(iv) recovery of the tax base from the historical lows reached during the pandemic and conflict. The
program envisages a limit on domestic bank borrowing by SOEs to supplement the zero limit on non-
concessional external borrowing and reforms to the electricity tariff framework with a view to further
reducing the total SOE debt to GDP ratio. Lower investment and a diminished growth contribution from
public investment than expected in the previous DSA are mitigated by a pick-up in productivity through
more efficient resource allocation as FX rationing and market distortions stemming from the exchange rate
ease, and by the increase in spending on education, health, and social safety net (Figures 3 and 4).

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11. Program-supported reforms reducing financial repression and exchange rate distortions
underpin a consolidation of quasi fiscal activity and increase fiscal transparency. Moving to positive
real interest rates and phasing out of mandatory purchase by banks of Treasury and Development Bank of
Ethiopia bonds at sub-market interest rates will eliminate subsidized lending to SOEs and government from
captive domestic savers. Recapitalizing CBE with government securities enables writing off CBE’s claims on
LAMC and provisioning of non-performing exposures to SOEs recognizes historic costs of subsidized
lending to SOEs on-budget. Eliminating real exchange rate overvaluation lifts the implicit tax on exporters
previously obliged to surrender FX at a below market exchange rate as well as the implicit subsidy to fuel
and fertilizers which were imported at the favorable official rate. Subsidies are brought on-budget, and the
impacts of the reforms managed through targeted cash transfers to vulnerable groups.

12. World Bank supported reforms complement and reinforce program support. The focus of
World Bank policy engagements through its Development Policy Operations, projects, and through the
Sustainable Development Financing Policy (SDFP) reinforce areas of the IMF-supported program. Relevant
areas of reform engagement and this DSA include the strengthening of the financial sector (with a focus on
the Commercial Bank of Ethiopia); improving fiscal and SOE financial transparency and reporting; revenue
mobilization; and broader structural reforms to improve the growth and export environment.

13. This DSA makes the following assumptions on external and domestic financing and debt
servicing:
• New debt projections add to debt outstanding as of end-June 2024. All bilateral sovereign
deposits at NBE including the recent deposits from a non-OCC country are categorized as
debt, as these deposits have been used to meet BOP needs, and in line with the treatment in
the past. No contracting or guaranteeing of new non-concessional external loans is assumed
during the duration of the arrangement, with one exception: the authorities have requested
an exemption from the zero-limit on non-concessional borrowing for the macro-critical
Koysha Hydroelectric Dam project (US$950 million).9 The ECF includes a present value-based
indicative target on overall external borrowing that is consistent with the authorities’
borrowing plan and debt sustainability (text table 4).
• The overall IDA project financing envelope is expected to reach about US$1.8 billion by
2027/28. Most of IDA envelope is assumed to be in loans, consistent with the LIC-DSF
guidance that regular credit terms on IDA lending should be assumed in all years for which
grant finance has not already been committed.
• A revised debt service schedule is used, based on outstanding debt as of end-June 2024 (the
new schedule is also reconciled between the authorities’ financial advisors and the OCC
secretariat for end-June 2023 stock, and includes the debt service schedule for loan
disbursements in 2023/24). This differs from the debt service schedule used in the previous
DSA, which included staff’s estimate of the standstill impact.

9The authorities could not mobilize concessional financing to finalize the Koysha dam project despite sustained
efforts. The project is critical for generating export revenues, rural electrification, and meeting climate change policy
goals and is already two-thirds complete.

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• A residual financing gap of US$10.7 billion during the program period is assumed. Reserve
adequacy would be brought to about 3.5 months of import coverage by the end of the
program. The Fund would contribute about a third of resources to fill the gap. Besides IMF
financing, the remaining gap is assumed to be financed by US$3.75 billion of budget
support from the World Bank and debt relief from the OCC, proxied by the issuance of a net
present value neutral bond. The World Bank disbursed US$1.5 billion of budget support in
August 2024. No assumption on the parameters and modality of the needed debt treatment
is made.

Text Table 4. The Federal Democratic Republic of Ethiopia: External Borrowing Plan for
FY2024/251
(Programmed Contracted Debt)

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

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

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

Concessional debt, of which2 3,950 81 1,906 67
Multilateral debt 3,600 73 1,683 59
Bilateral debt 350 7 224 8
2
Non-concessional debt, of which 950 19 950 33
Semi-concessional3 - - - -
4
Commercial terms 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.

• For domestic debt, the program balances phasing out of non-market-based financing of the
public sector and maintaining fiscal sustainability:
o In July 2024, the authorities issued 899 billion Birr of 13-year government securities
to write off all CBE claims on LAMC (580 billion birr) and fully provision
nonperforming SOE exposures (263 billion birr) and bring CBE’s capital adequacy
ratio to the regulatory minimum (54 billion). This has no material impact on
domestic debt level since CBE’s claims on LAMC and SOEs were already part of
domestic PPG debt in the DSA.
o Monetary financing of fiscal deficits has been eliminated starting in FY2024/25.
o The mandatory purchase of 5-year treasury bonds at sub-market interest rates by
commercial banks will be phased out by end-June 2025, with an intention to develop
the market for longer-dated government securities.
o The requirement that financial institutions purchase DBE bonds will be removed
before the fifth review of the Fund program.

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o A voluntary exchange of the current stock of T-bills held by Public Servants Social
Security Agency and the Private Organizations Employees’ Social Security
Administration for 13-year securities was conducted in July 2024. The exchange
provides debt service relief to the Treasury and an instrument that better matches
the pension funds’ asset and liability durations.
o Direct advances from the NBE totaling 242 billion Birr at end-June 2024 have been
converted into a long-term bond with a maturity of 25 years and an interest rate of
3 percent.
• In future, domestic financing needs
will be covered by market-oriented
instruments. The government’s net
domestic financing is projected to
shift predominantly to T-bills with
market-determined interest rates,
while SOEs are assumed to issue
medium to long-term bonds.
Interest rates will rise to positive
levels in real terms over the medium
term, consistent with the phasing
out of financial repression under an
interest rate-based monetary policy
framework. Before the transition to
fully market-based instruments is complete, the lower costs associated with legacy domestic
debt instruments paying sub-market interest rates and the pension funds’ voluntary
conversion of short-term debts into longer-term bonds provides significant real debt service
relief to the government.

D. Country Classification

14. Ethiopia’s debt carrying capacity is weak, due fundamentally to the decline in FX reserves.
The Composite Indicator (CI)—based on the IMF World Economic Outlook projections in October 2024 and
the World Bank’s 2023 Country Policy and Institutional Assessment (CPIA) score that was published in July
2024—stands at 2.47, which corresponds to a weak signal. Ethiopia’s debt carrying capacity was
downgraded to “weak” in October 2022 after two consecutive weak signals driven by low FX reserves and a
slight decline in CPIA.

E. External Debt Sustainability Analysis

Baseline

15. Public and publicly guaranteed (PPG) external debt is expected to decline over the
projection period, but three indicators consistently breach their indicative thresholds. The debt
service-to-revenue ratio and the two exports-linked external debt ratios present protracted breaches,

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reflecting two main factors: (i) high and bunched debt service from SOE investment projects and
repayment of the US$1 billion Eurobond in December 2024; and (ii) the low level of exports. Finally, the PV
of debt-to GDP ratio remains well below its indicative threshold for the entire projection period (Figure 1).

Standardized Stress Tests

16. The standard stress tests highlight vulnerabilities to export shocks. Adverse shocks to exports
would exacerbate external debt servicing pressures and difficulties in financing external and domestic
needs (Figure 1). In the case of the two exports related indicators that consistently breach the thresholds,
the breaches become larger. Implementation of FX reforms, building FX reserves, and materialization of
upside risks to exports from a better-than-expected response to reforms or the impact of faster global
growth, would help strengthen external debt sustainability. The debt service-to-revenue ratio experiences
larger and persistent breaches under a one-time exchange rate depreciation shock, which points to risks of
devoting significant amount of revenue to external debt service at the expense of cutting priority spending
under a sharp depreciation scenario.

17. Indicators of market financing risks remain elevated. The EMBI spread is at distressed levels,
well beyond the LIC-DSF benchmark of 570 basis points. The relatively contained external financing needs
lead to a moderate rating for market financing risks under the LIC DSF. A return to market access is
unrealistic at current spreads and is neither foreseen by the authorities nor necessary to meet external
financing needs. Market financing risks are currently assessed as moderate per the mechanical risk rating
under the LIC DSF (below the LIC DSF benchmark of 14 percent of GDP for signaling market-financing
pressures) (Figure 5). Gradual consolidation of the public sector including SOEs, along with deepening of
financial markets through the opening of banking sector to foreign investors and the growth of pension
funds, can mitigate domestic financing pressures.

F. Public Debt Sustainability Analysis

Baseline

18. The present value of overall public debt/GDP ratio is projected to steadily decline, with
breaches only in 2024/25. As public sector consolidation takes hold and the external debt situation
improves with continued restraint on borrowing, the PV of public debt/GDP ratio will stay below the
applicable threshold throughout the projection period (with a one-off breach discounted). Gross financing
needs are projected to average around 6 percent of GDP during the program period through 2027/28
(below the LIC-DSF benchmark of 14 percent of GDP) and stabilize at around 9 percent of GDP by 2033/34.
This need is expected to revert to normal levels, alongside an anticipated increase in the real cost of new
domestic borrowing over the medium to long term. Should downside risks of public sector balances lead
to larger fiscal needs in the near term, the authorities’ commitment to consolidation during the Fund-
supported program would help contain the risks to public debt. The PV of public debt-to-revenue also
remains on a downward trend.

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Text Table 5. The Federal Democratic Republic of Ethiopia: Calculation of the CI Index

Components Coefficients (A) 10-year average values CI Score components Contribution of

(B) (A*B) = (C) components
CPIA 0.385 3.260 1.26 51%
Real growth rate (in percent) 2.719 7.032 0.19 8%
Import coverage of reserves (in
percent) 4.052 15.766 0.64 26%
Import coverage of reserves^2 (in
percent) -3.990 2.486 -0.10 -4%
Remittances (in percent) 2.022 4.250 0.09 3%
World economic growth (in percent) 13.520 2.967 0.40 16%

CI Score 2.473 100%

CI rating Weak

New framework

Cut-off values
Weak CI < 2.69

Medium 2.69 ≤ CI ≤ 3.05

Strong CI > 3.05

APPLICABLE APPLICABLE

EXTERNAL debt burden thresholds TOTAL public debt benchmark

PV of total public debt in
PV of debt in % of percent of GDP 35
Exports 140
GDP 30

Debt service in % of
Exports 10
Revenue 14

Standardized Stress Tests

19. Overall public debt is susceptible to the materialization of contingent liabilities. The PV
debt/GDP ratio rises to 42 percent in 2025/26 under combined contingent liabilities shock but remains
below the threshold from 2027/28 onwards.

20. Risks from Ethiopian Airlines appear negligible in the near term The airline, which is excluded
from the DSA, adjusted well to the COVID shock with support from a strong balance sheet at the beginning
of the crisis and active measures, including changes in business focus to cargo. This operational shift
allowed the company to achieve record profitability. The authorities have conveyed that Ethiopian Airlines
does not intend to seek government support.

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G. Risk Rating and Vulnerabilities

21. Ethiopia’s debt is assessed to be unsustainable, mainly due to protracted breaches of

exports-related external debt indicators. Following a missed Eurobond interest payment in December
2023, the country is in debt distress.

22. Successful completion of debt treatment and implementation of the reform agenda would
restore debt sustainability and allow exit from debt distress. Ethiopia’s DCC is classified as weak,
because of low reserves and recent modest declines in the CPIA. In relation to the debt thresholds for weak
DCC, there are protracted breaches of the two exports-related indicators and of the debt service to revenue
ratio, indicating both liquidity and solvency pressures. The PV of external debt to GDP ratio remains below
the threshold for the entire projection period in both the baseline and the most extreme shock scenario. All
remaining external debt burden indicators exceed their thresholds for a protracted period under both the
baseline and the most extreme shock scenario, with stress tests indicating vulnerabilities to export and
depreciation shocks. The combination of prudent macroeconomic policies, including a move to market
clearing exchange rate and export diversification, fiscal and debt conditionality, improved SOE governance,
and the debt treatment would all contribute towards reducing debt vulnerabilities. A drawn-out debt
restructuring process would however slow the reduction in debt vulnerabilities.

23. An external debt treatment is needed for Ethiopia to close financing gaps over the program
period and to help achieve a moderate risk of debt distress by the end of the requested
Fund-supported program. To close the BOP financing gap, required debt relief during the program
period (2024/25–2027/28) amounts to about US$3.5 billion. To bring Ethiopia’s risk of debt distress to
“moderate” over the medium term, debt relief would need to bring the three binding external debt burden
indicators below the thresholds (140 for PV of debt-to-exports ratio, 10 for debt service-to-exports ratio
and 14 for debt service to revenue) by the end of the program period and remain so over the DSA
projection horizon.

24. The OCC provided financing assurances for a debt treatment consistent with the IMF-
supported program and is on track to reach agreement with the authorities on a term sheet for
debt treatment by the second review. The authorities made a formal debt treatment proposal to the
OCC on October 16, 2024. The co-chairs offered the authorities reassurance on October 23 that “sufficient
progress towards an agreement in principle by the time of the second review” is being made. An OCC
meeting took place on December 4 to review the debt treatment perimeter, the cut-off date and the
authorities’ request for an extension of debt service standstill until the Memorandum of Understanding
(MOU) on debt treatment is signed. Further meetings on proposed terms are expected later in December
2024. The authorities have also taken important steps towards discussing debt restructuring on comparable
terms with private creditors. Following a Global Investor Call on October 1, 2024, which provided an update
on recent economic developments and included an illustrative debt treatment option, the authorities met
the Eurobond creditor committee (representing more than 40 percent of principal) during the IMF/WB
Annual Meetings.

25. The post-restructuring DSA incorporating the authorities’ illustrative debt treatment
proposed to the OCC indicates that the debt vulnerability rating is expected to improve to

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moderate risk of debt distress by the end of program (July 2028). In the illustrative scenario, all
indicators fall under the thresholds starting in 2027/28 (2028 in the figure below). The PV of debt-to-
exports and the debt service to export ratios reach the thresholds in the last year of the program, with no
“buffer”, reflecting balanced risks to the macroeconomic outlook, while indicators in the baseline remain
comfortably below thresholds in the post-program period. The OCC secretariat is preparing debt
restructuring options, including the authorities’ proposal. Following the supplement to the 2018 guidance
note on the LIC-DSF, the official sector debt treatment will be only incorporated in the baseline after a
memorandum of understanding is agreed by the OCC and the authorities.

Text Figure 1. The Federal Democratic Republic of Ethiopia: The Authorities’

Illustrative Debt Restructuring Scenario-Indicators of PPG Debt,
2025(2024/25)–2035(2034/35)

PV of Debt-to-GDP Ratio PV of Debt-to-Export Ratio

35 250

30
200
25

20 150

15
100
10
50
5
Most extreme shock: One-time depreciation Most extreme shock: Exports
0 0
2025 2027 2029 2031 2033 2035 2025 2027 2029 2031 2033 2035

Debt Service-to-Exports Ratio Debt Service-to-Revenue Ratio

ebt se ce to e e ue at o
18
25
16
14 20
12
10 15
8
6 10

4
5
2
Most extreme shock: Exports Most extreme shock: One-time depreciation
0
0
2025 2027 2029 2031 2033 2035
2025 2027 2029 2031 2033 2035

Baseline Historical scenario Most extreme shock 1/ Threshold

H. Authorities’ Views

26. The authorities broadly agreed with the overall assessment of the country’s debt
sustainability. Debt sustainability is expected to be restored through a debt restructuring, development
partner support, and the reforms contemplated under the Fund-supported program. The authorities are
committed to further improve debt management.

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 Table 1. The Federal Democratic Republic of Ethiopia: External Debt Sustainability Framework, 2022–2044
(In percent of GDP, unless otherwise indicated)

Actual Projections Average 8/

2022 2023 2024 2025 2026 2027 2028 2029 2030 2035 2044 Historical Projections

External debt (nominal) 1/ 25.8 19.5 16.1 31.3 27.9 25.2 22.9 19.8 17.2 9.3 4.5 27.9 18.6 Definition of external/domestic debt Residency-based
of which: public and publicly guaranteed (PPG) 24.0 18.1 15.1 29.3 26.2 24.0 21.9 19.1 16.7 9.3 4.5 25.6 17.9
Is there a material difference between the
No
two criteria?
Change in external debt -5.6 -6.3 -3.4 15.2 -3.4 -2.7 -2.3 -3.0 -2.6 -1.2 -0.4
Identified net debt-creating flows -2.4 -5.1 -3.3 -1.5 -2.3 -2.2 -2.6 -2.6 -2.0 -0.7 -0.7 -1.0 -1.7
Non-interest current account deficit 3.6 2.5 2.7 3.0 2.4 2.0 1.6 1.5 2.0 2.2 1.8 5.1 2.2
Deficit in balance of goods and services 10.1 7.4 6.2 9.9 8.9 8.1 7.6 7.0 7.2 5.7 4.3 12.6 7.3
Exports 8.2 6.6 5.6 9.6 9.9 10.0 10.2 10.0 9.9 9.2 9.2
Debt Accumulation
Imports 18.3 14.0 11.8 19.5 18.8 18.2 17.9 17.0 17.0 14.9 13.5
3.5 60
Net current transfers (negative = inflow) -6.5 -4.8 -3.5 -6.9 -6.5 -6.2 -6.0 -5.5 -5.2 -3.6 -2.5 -7.4 -5.2
of which: official -0.9 -0.7 -0.5 -1.8 -1.1 -1.0 -0.9 -0.8 -0.8 -0.7 -0.7 3.0
Other current account flows (negative = net inflow) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 50
2.5
Net FDI (negative = inflow) -2.6 -2.1 -1.9 -3.4 -3.2 -2.9 -3.0 -3.0 -3.1 -2.5 -2.3 -3.3 -2.9
Endogenous debt dynamics 2/ -3.4 -5.5 -4.1 -1.1 -1.4 -1.3 -1.2 -1.1 -1.0 -0.5 -0.2 2.0 40
Contribution from nominal interest rate 0.5 0.3 0.2 0.6 0.6 0.6 0.5 0.5 0.4 0.1 0.0
Contribution from real GDP growth -1.8 -1.4 -1.2 -1.7 -2.0 -1.9 -1.8 -1.6 -1.3 -0.6 -0.2 1.5
30
Contribution from price and exchange rate changes -2.1 -4.4 -3.1 … … … … … … … … 1.0
Residual 3/ -3.2 -1.3 -0.1 16.7 -1.2 -0.5 0.3 -0.5 -0.6 -0.5 0.4 0.0 1.1
of which: exceptional financing 0.2 0.2 0.0 3.2 1.5 1.0 1.2 0.0 0.0 -0.2 0.0 0.5 20

0.0
Sustainability indicators 10
PV of PPG external debt-to-GDP ratio ... ... 11.5 19.9 19.0 17.1 15.5 13.3 11.5 5.9 2.8 -0.5
PV of PPG external debt-to-exports ratio ... ... 207.4 208.5 192.5 170.6 151.7 133.6 116.9 64.6 30.0
-1.0 0
PPG debt service-to-exports ratio 14.7 11.6 7.9 25.2 16.5 15.4 17.1 16.4 13.5 6.7 2.6 2025 2027 2029 2031 2033 2035
PPG debt service-to-revenue ratio 15.0 9.8 6.0 28.0 16.6 14.3 15.5 14.3 11.6 5.3 2.0
Gross external financing need (Million of U.S. dollars) 3170.6 2275.1 3080.9 3095.6 1675.8 1554.8 1235.2 824.6 1090.8 1721.5 -2539.5 Debt Accumulation
Grant-equivalent financing (% of GDP)

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Key macroeconomic assumptions
Grant element of new borrowing (% right scale)
Real GDP growth (in percent) 6.4 7.2 8.1 6.6 7.1 7.7 8.0 7.8 7.5 6.5 5.5 7.9 7.2
GDP deflator in US dollar terms (change in percent) 7.1 20.5 18.7 -41.3 2.0 6.1 5.7 4.7 4.4 6.3 3.3 6.1 1.0
Effective interest rate (percent) 4/ 1.7 1.6 1.1 2.5 2.1 2.4 2.5 2.3 2.1 1.5 0.9 1.9 2.0 External debt (nominal) 1/
Growth of exports of G&S (US dollar terms, in percent) 22.8 3.3 8.1 7.7 12.6 16.5 16.3 9.7 11.2 11.9 9.3 6.4 12.0 of which: Private
35
Growth of imports of G&S (US dollar terms, in percent) 24.9 -1.4 7.8 3.7 5.2 10.7 12.2 7.2 12.4 10.2 7.8 5.2 9.4
Grant element of new public sector borrowing (in percent) ... ... ... 35.1 43.5 41.3 31.5 48.3 49.1 50.5 50.7 ... 47.0
INTERNATIONAL MONETARY FUND

30
Government revenues (excluding grants, in percent of GDP) 8.1 7.9 7.3 8.5 9.8 10.8 11.2 11.4 11.5 11.7 12.3 11.1 11.0
Aid flows (in Million of US dollars) 5/ 549.6 602.9 590.2 3893.4 3396.8 3060.8 2800.4 2804.0 2900.2 3584.6 6014.3 25
Grant-equivalent financing (in percent of GDP) 6/ ... ... ... 2.9 1.8 1.4 1.1 0.9 0.8 0.6 0.5 ... 1.1
Grant-equivalent financing (in percent of external financing) 6/ ... ... ... 51.3 53.0 52.2 42.7 64.5 67.1 71.2 79.3 ... 61.9 20

15
Memorandum items:
PV of external debt 7/ ... ... 12.6 22.0 20.6 18.4 16.5 14.0 12.1 6.0 2.8 10
In percent of exports ... ... 226.3 229.9 209.3 182.8 161.2 141.1 122.4 65.6 30.2
Total external debt service-to-exports ratio 18.7 14.4 11.4 29.2 20.3 18.7 19.9 18.6 15.4 7.1 2.8 5
PV of PPG external debt (in Million of US dollars) 24195.0 26184.7 27214.4 28105.6 29066.0 28094.0 27315.5 26205.1 28492.7
0
(PVt-PVt-1)/GDPt-1 (in percent) 0.9 0.8 0.6 0.6 -0.5 -0.4 -0.1 0.0
2025 2027 2029 2031 2033 2035
Non-interest current account deficit that stabilizes debt ratio 9.2 8.9 6.1 -12.2 5.8 4.7 3.9 4.6 4.6 3.5 2.2

Sources: Country authorities; and staff estimates and projections.

1/ Includes both public and private sector external debt. Presented on fiscal year basis (e.g., 2020 referes to fiscal year ending in June 2020).
2/ Derived as [r - g - ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of
local currency-denominated external debt in total external debt.
3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.
4/ Current-year interest payments divided by previous period debt stock.
5/ Defined as grants, concessional loans, and debt relief.
6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).
7/ Assumes that PV of private sector debt is equivalent to its face value.
8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
19

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 Table 2. The Federal Democratic Republic of Ethiopia: Public Sector Debt Sustainability Framework, 2022–2044

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

20

(In percent of GDP, unless otherwise indicated)

INTERNATIONAL MONETARY FUND

Actual Projections Average 6/

2022 2023 2024 2025 2026 2027 2028 2029 2030 2035 2044 Historical Projections

Public sector debt 1/ 48.9 40.2 34.4 45.5 39.8 36.8 34.3 32.2 30.3 23.0 21.0 51.4 31.6
Definition of external/domestic Residency-
of which: external debt 24.0 18.1 15.0 29.2 26.2 23.9 21.9 19.1 16.7 9.3 4.5 25.6 17.9
debt based
of which: local-currency denominated
Change in public sector debt -7.3 -8.7 -5.8 11.2 -5.8 -2.9 -2.5 -2.2 -1.8 -1.2 -0.1
Is there a material difference
Identified debt-creating flows -8.1 -10.6 -7.2 -3.8 -3.8 -2.1 -1.8 -1.5 -1.2 -0.6 0.0 -5.0 -1.7 No
between the two criteria?
Primary deficit 3.7 2.2 1.6 0.7 0.9 1.0 0.9 0.8 0.6 0.3 0.2 2.4 0.7
Revenue and grants 8.5 8.2 7.5 9.9 10.3 11.3 11.7 11.9 12.0 12.0 12.6 11.9 11.5
of which: grants 0.4 0.4 0.3 1.4 0.6 0.5 0.4 0.4 0.4 0.3 0.3 Public sector debt 1/
Primary (noninterest) expenditure 12.3 10.4 9.2 10.7 11.2 12.3 12.6 12.6 12.6 12.3 12.8 14.3 12.2
Automatic debt dynamics -11.9 -12.8 -8.8 -4.9 -4.3 -3.2 -2.8 -2.3 -1.9 -0.9 -0.2 of which: local-currency denominated
Contribution from interest rate/growth differential -10.7 -8.9 -6.6 -4.9 -4.3 -3.2 -2.8 -2.3 -1.9 -0.9 -0.2
of which: foreign-currency denominated
of which: contribution from average real interest rate -7.4 -5.6 -3.6 -2.7 -1.3 -0.3 -0.1 0.2 0.4 0.6 0.9
of which: contribution from real GDP growth -3.4 -3.3 -3.0 -2.1 -3.0 -2.9 -2.7 -2.5 -2.2 -1.5 -1.1 50
Contribution from real exchange rate depreciation -1.1 -3.9 -2.3 ... ... ... ... ... ... ... ... 45
Other identified debt-creating flows 0.0 0.0 0.0 0.3 -0.5 0.0 0.0 0.0 0.0 0.0 0.0 -0.2 0.0 40
35
Privatization receipts (negative) 0.0 0.0 0.0 0.0 -0.5 0.0 0.0 0.0 0.0 0.0 0.0
30
Recognition of contingent liabilities (e.g., bank recapitalization) 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0
25
Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
20
Other debt creating or reducing flow (liquid financial asset) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 15
Residual 0.9 1.9 1.4 14.9 -1.9 -0.8 -0.6 -0.6 -0.6 -0.6 -0.1 4.0 0.6 10
5
Sustainability indicators 0
PV of public debt-to-GDP ratio 2/ ... ... 31.1 38.8 33.2 30.5 28.4 26.7 25.4 19.8 19.3 2025 2027 2029 2031 2033 2035
PV of public debt-to-revenue and grants ratio … … 412.3 390.6 321.4 270.4 243.6 225.3 212.2 165.0 153.1
Debt service-to-revenue and grants ratio 3/ 47.9 59.7 54.0 43.4 42.1 35.1 45.0 52.2 60.4 73.3 59.2
Gross financing need 4/ 7.8 7.1 5.7 5.4 4.8 5.0 6.2 6.9 7.9 9.1 7.7 of which: held by residents

Key macroeconomic and fiscal assumptions of which: held by non-residents

50
Real GDP growth (in percent) 6.4 7.2 8.1 6.6 7.1 7.7 8.0 7.8 7.5 6.5 5.5 7.9 7.2
45
Average nominal interest rate on external debt (in percent) 1.8 1.5 0.9 2.4 2.2 2.3 2.3 2.3 2.1 1.5 0.9 1.9 2.0 40
Average real interest rate on domestic debt (in percent) -23.6 -22.2 -16.3 -15.5 -8.9 -3.4 -1.4 0.7 2.7 4.6 6.1 -11.5 -0.6 35
Real exchange rate depreciation (in percent, + indicates depreciation) -4.4 -17.7 -13.8 … ... ... ... ... ... ... ... -2.7 ... 30
25
Inflation rate (GDP deflator, in percent) 33.3 32.2 24.7 23.7 19.0 13.1 11.9 10.4 8.8 10.5 6.3 18.2 12.5
20
Growth of real primary spending (deflated by GDP deflator, in percent) -1.4 -9.2 -4.9 24.4 12.6 18.1 10.5 7.8 7.3 6.1 5.7 1.6 10.3 15
Primary deficit that stabilizes the debt-to-GDP ratio 5/ 11.0 10.9 7.4 -10.4 6.7 4.0 3.4 3.0 2.5 1.5 0.3 9.8 1.7 10
PV of contingent liabilities (not included in public sector debt) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5
0
2025 2027 2029 2031 2033 2035
Sources: Country authorities; and staff estimates and projections.
1/ Coverage of debt: The central, state, and local governments, central bank, government-guaranteed debt, non-guaranteed SOE debt . Definition of external debt is Residency-based. Presented on fiscal year basis (e.g., 2020 referes to fiscal year ending in June 2020).
2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.
3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.
4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.
5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.
6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.

©International Monetary Fund. Not for Redistribution

 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Figure 1. The Federal Democratic Republic of Ethiopia: Indicators of Public and Publicly
Guaranteed External Debt

PV of Debt-to GDP Ratio PV of Debt-to-Export Ratio

o debt to G at o p
35 300

30 250

25
200
20
150
15
100
10

5 50
Most extreme shock: One-time depreciation Most extreme shock: Exports
0 0
2025 2027 2029 2031 2033 2035 2025 2027 2029 2031 2033 2035

Debt Service-to-Exports Ratio Debt Service-to-Revenue Ratio

30
30

25
25

20
20

15
15

10
10

5
5
Most extreme shock: Exports Most extreme shock: One-time depreciation
0
0
2025 2027 2029 2031 2033 2035
2025 2027 2029 2031 2033 2035

Baseline Historical scenario Most extreme shock 1/ Threshold

Borrowing Assumptions on Additional Financing Needs Resulting

Customization of Default Settings from the Stress Tests*
Size Interactions Default User Defined
Shares of marginal debt
No No External PPG MLT debt 100%
Tailored Stress Terms of marginal debt
Combined CL Yes Avg. nominal interest rate on new borrowing in USD 1.1% 1.1%
Natural disaster n.a. n.a. USD Discount rate 5.0% 5.0%
Commodity price n.a. n.a. Avg. maturity (incl. grace period) 32 32
Market financing No No Avg. grace period 6 6
Note: "Yes" indicates any change to the size or * Note: All the additional financing needs generated by the shocks under the
interactions of the default settings for the stress tests are assumed to be covered by PPG external MLT debt in the
stress tests. "n.a." indicates that the stress test external DSA. Default terms of marginal debt are based on baseline 10-year
does not apply. projections.

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Figure 2. The Federal Democratic Republic of Ethiopia: Indicators of Public Debt

(In percent)

PV of Debt-to-GDP Ratio

PV of Debt-to-Revenue Ratio Debt Service-to-Revenue Ratio

450 100

400 90

350 80

70
300
60
250
50
200
40
150
30
100
20
50
Most extreme shock: One-time Most extreme shock: Growth
10
depreciation
0 0
2025 2027 2029 2031 2033 2035 2025 2027 2029 2031 2033 2035

Baseline Most extreme shock 1/

TOTAL public debt benchmark Historical scenario

Borrowing assumptions on additional financing needs resulting from the stress Default User defined
tests*
Shares of marginal debt
External PPG medium and long-term 25% 30%
Domestic medium and long-term 25% 25%
Domestic short-term 50% 45%
Terms of marginal debt
External MLT debt
Avg. nominal interest rate on new borrowing in USD 1.2% 1.2%
Avg. maturity (incl. grace period) 31 31
Avg. grace period 6 6
Domestic MLT debt
Avg. real interest rate on new borrowing 0.7% 0.7%
Avg. maturity (incl. grace period) 7 7
Avg. grace period 2 2
Domestic short-term debt
Avg. real interest rate 1.4% 1.4%
* Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under
the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections.

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio in or before 2034. The stress test with a one-off breach is
also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off
breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off
breach) would be presented.

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 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 3. The Federal Democratic Republic of Ethiopia: Sensitivity Analysis for Key
Indicators of Public and Publicly Guaranteed External Debt, 2025–2035
(In percent)

Projections 1/
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

PV of debt-to GDP ratio

Baseline 20 19 17 16 13 12 10 9 8 7 6

A. Alternative Scenarios
A1. Key variables at their historical averages in 2025-2035 2/ 20 19 19 19 18 17 17 16 15 15 14
0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

B. Bound Tests
B1. Real GDP growth 20 19 18 16 14 12 11 9 8 7 6
B2. Primary balance 20 19 19 17 15 13 12 10 9 8 7
B3. Exports 20 20 19 17 15 13 12 10 9 8 7
B4. Other flows 3/ 20 21 21 19 16 14 13 11 10 9 7
B5. Depreciation 20 28 22 20 17 15 13 11 10 8 7
B6. Combination of B1-B5 20 21 20 19 16 14 12 11 10 8 7

C. Tailored Tests
C1. Combined contingent liabilities 20 21 19 18 16 14 13 11 10 9 8
C2. Natural disaster … … … … … … … … … … …
C3. Commodity price … … … … … … … … … … …
C4. Market Financing 20 21 19 17 15 13 11 10 9 8 7

Threshold 30 30 30 30 30 30 30 30 30 30 30

PV of debt-to-exports ratio
Baseline 209 192 171 152 134 117 104 94 83 73 65

A. Alternative Scenarios
A1. Key variables at their historical averages in 2025-2035 2/ 209 198 190 186 182 174 171 169 163 158 154
0

B. Bound Tests
B1. Real GDP growth 209 192 171 152 134 117 104 94 83 73 65
B2. Primary balance 209 196 186 168 150 133 120 111 98 88 79
B3. Exports 209 228 259 231 205 181 162 148 130 115 101
B4. Other flows 3/ 209 211 204 182 162 144 129 118 104 92 81
B5. Depreciation 209 192 150 133 116 100 89 80 69 61 54
B6. Combination of B1-B5 209 229 193 215 191 169 151 138 122 108 95

C. Tailored Tests
C1. Combined contingent liabilities 209 208 192 175 159 143 130 121 109 99 90
C2. Natural disaster … … … … … … … … … … …
C3. Commodity price … … … … … … … … … … …
C4. Market Financing 209 193 171 152 134 117 104 94 82 73 64

Threshold 140 140 140 140 140 140 140 140 140 140 140

Debt service-to-exports ratio

Baseline 25.2 16.5 15.4 17.1 16.4 13.5 8.9 8.6 8.0 7.4 6.7

A. Alternative Scenarios
A1. Key variables at their historical averages in 2025-2035 2/ 25 16 15 17 16 13 9 9 9 9 9
0

B. Bound Tests
B1. Real GDP growth 25 17 15 17 16 13 9 9 8 7 7
B2. Primary balance 25 17 16 18 17 14 9 9 9 8 7
B3. Exports 25 19 21 24 23 19 12 12 11 11 10
B4. Other flows 3/ 25 17 16 18 17 14 9 9 9 9 8
B5. Depreciation 25 17 15 17 16 13 9 8 8 7 6
B6. Combination of B1-B5 25 18 20 22 21 17 12 11 11 11 9

C. Tailored Tests
C1. Combined contingent liabilities 25 17 16 17 17 14 9 9 8 8 7
C2. Natural disaster … … … … … … … … … … …
C3. Commodity price … … … … … … … … … … …
C4. Market Financing 25 17 15 17 17 14 10 10 8 7 6

Threshold 10 10 10 10 10 10 10 10 10 10 10

Debt service-to-revenue ratio

Baseline 28 17 14 15 14 12 8 7 6 6 5

A. Alternative Scenarios
A1. Key variables at their historical averages in 2025-2035 2/ 28 16 14 15 14 11 8 7 7 7 7
0 28 17 15 18 17 15 10 10 9 8 6

B. Bound Tests
B1. Real GDP growth 28 17 15 16 15 12 8 7 7 6 6
B2. Primary balance 28 17 15 16 15 12 8 8 7 7 6
B3. Exports 28 17 14 16 15 12 8 7 7 7 6
B4. Other flows 3/ 28 17 15 16 15 12 8 7 7 7 6
B5. Depreciation 28 25 21 22 21 17 11 10 9 8 7
B6. Combination of B1-B5 28 17 15 17 15 12 8 8 7 7 6

C. Tailored Tests
C1. Combined contingent liabilities 28 17 15 16 15 12 8 7 7 6 6
C2. Natural disaster … … … … … … … … … … …
C3. Commodity price … … … … … … … … … … …
C4. Market Financing 28 17 14 16 14 12 8 8 7 6 5

Threshold 14 14 14 14 14 14 14 14 14 14 14

Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 46.4 46.4 46.4 46.4 46.4 46.4 46.4 46.4 46.4 46.4 46.4

Sources: Country authorities; and staff estimates and projections.

1/ A bold value indicates a breach of the threshold.
2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.
3/ Includes official and private transfers and FDI.

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Table 4. The Federal Democratic Republic of Ethiopia: Sensitivity Analysis for Key
Indicators of Public Debt, 2025/2035
(In percent)
Projections 1/
2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

PV of Debt-to-GDP Ratio

Baseline 39 33 31 28 27 25 24 23 22 21 20

A. Alternative Scenarios
A1. Key variables at their historical averages in 2025-2035 2/ 39 34 31 28 25 23 21 20 18 18 17
0 #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A #N/A

B. Bound Tests
B1. Real GDP growth 39 34 33 31 29 28 27 26 25 24 24
B2. Primary balance 39 35 35 32 30 28 27 25 24 23 22
B3. Exports 39 34 33 30 28 27 26 24 23 22 21
B4. Other flows 3/ 39 35 34 32 30 28 27 25 24 23 21
B5. Depreciation 39 42 37 33 30 27 25 23 21 19 18
B6. Combination of B1-B5 39 33 31 29 27 25 24 22 21 20 19

C. Tailored Tests
C1. Combined contingent liabilities 39 41 38 35 32 31 29 27 26 24 23
C2. Natural disaster … … … … … … … … … … …
C3. Commodity price … … … … … … … … … … …
C4. Market Financing 39 33 31 28 27 25 24 23 22 21 20

TOTAL public debt benchmark 35 35 35 35 35 35 35 35 35 35 35

PV of Debt-to-Revenue Ratio

Baseline 391 322 271 244 226 212 203 192 182 173 165

A. Alternative Scenarios
A1. Key variables at their historical averages in 2025-2035 2/ 391 329 271 238 214 193 178 166 156 149 144
0 44 24 23 28 33 41 46 51 57 63 69

B. Bound Tests
B1. Real GDP growth 391 330 288 263 247 236 228 220 211 203 197
B2. Primary balance 391 340 308 276 254 238 226 214 201 190 181
B3. Exports 391 328 289 260 240 226 215 204 192 182 173
B4. Other flows 3/ 391 339 302 271 250 235 224 212 199 188 178
B5. Depreciation 391 410 329 282 250 226 209 192 175 160 148
B6. Combination of B1-B5 391 316 278 247 227 212 200 188 176 165 156

C. Tailored Tests
C1. Combined contingent liabilities 391 400 333 298 274 256 243 229 215 203 193
C2. Natural disaster … … … … … … … … … … …
C3. Commodity price … … … … … … … … … … …
C4. Market Financing 391 322 271 244 226 213 202 192 181 172 165

Debt Service-to-Revenue Ratio

Baseline 44 42 35 45 52 61 65 68 70 73 74

A. Alternative Scenarios
A1. Key variables at their historical averages in 2025-2035 2/ 44 42 34 41 45 48 47 46 46 46 47
0 44 24 23 28 33 41 46 51 57 63 69

B. Bound Tests
B1. Real GDP growth 44 43 38 50 59 68 73 78 80 83 85
B2. Primary balance 44 42 45 60 62 68 72 75 76 77 78
B3. Exports 44 42 35 45 53 61 65 69 71 73 74
B4. Other flows 3/ 44 42 35 46 53 61 65 69 71 74 74
B5. Depreciation 44 44 41 50 56 62 63 66 67 69 69
B6. Combination of B1-B5 44 40 35 47 52 59 63 67 68 70 71

C. Tailored Tests
C1. Combined contingent liabilities 44 42 76 69 69 74 77 79 79 80 79
C2. Natural disaster … … … … … … … … … … …
C3. Commodity price … … … … … … … … … … …
C4. Market Financing 44 42 35 45 53 61 66 69 71 72 73

Sources: Country authorities; and staff estimates and projections.

1/ A bold value indicates a breach of the benchmark.
2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.
3/ Includes official and private transfers and FDI.

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 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Figure 3. The Federal Democratic Republic of Ethiopia: Drivers of Debt Dynamics––Baseline

Scenario, External Debt

Gross Nominal PPG External Debt Debt-Creating Flows Unexpected1

(In Percent of GDP, DSA Vintages (Percent of GDP) (Past 5 Years, Percent of GDP)

Public Debt

Gross Nominal PPG External Debt Debt-Creating Flows Unexpected1

(In Percent of GDP, DSA Vintages (Percent of GDP) (Past 5 Years, Percent of GDP)

Gi
(in percent of GDP; DSA vintages) Residual 50
(percent of GDP) (past 5 years, percent of GDP)
Current DSA
proj. 25
Previous DSA Interquartil
Other debt 20 e range
80 DSA-2019
creating flows 15 (25-75)
70
Real Exchange 10
60 rate 5
depreciation 0
50 Real GDP 0 Change in
growth -5 debt
40
Real interest -10
30
rate -15
20
Primary deficit -20
10 -50 -25 Median

0 Change in 5-year 5-year -30 Contribution of

debt historical projected unexpected Distribution across LICs 2/
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034

change change

1
Difference between anticipated and actual contributions on debt rations.
2
Distribution across LICs for which LIC DSAs were produced.
3
Given the relatively low private external debt for average low-income countries, a ppt change in PPG external debt
should be largely explained by the drivers of the external debt dynamics equation.

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Figure 4. The Federal Democratic Republic of Ethiopia: Realism Tools

3-Year Adjustment in Primary Balance Fiscal Adjustment and Possible Growth Paths 1/
(Percentage points of GDP)

10 1
14 Distribution 1/
9
12 Projected 3-yr
8
adjustment 3-year PB adjustment greater

In percentage points of GDP

than 2.5 percentage points of 7
10
GDP in approx. top quartile 6

In percent
8 5 0
4
6
3
4 2
1
2
0 -1
0 2019 2020 2021 2022 2023 2024 2025 2026
Baseline Multiplier = 0.2 Multiplier = 0.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
more
-4.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5

Multiplier = 0.6 Multiplier = 0.8

1/ Data cover Fund-supported programs for LICs (excluding emergency financing) approved since 1990. 1/ Bars refer to annual projected fiscal adjustment (right-hand side scale) and lines show possible real
The size of 3-year adjustment from program inception is found on the horizontal axis; the percent of GDP growth paths under different fiscal multipliers (left-hand side scale).
sample is found on the vertical axis.

Public and Private Investment Rates Contribution to Real GDP growth

(percent of GDP) (percent, 5-year average)

32 8
7

24 6
5

16 4
3

8 2
1

0 0
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Historical Projected (Prev. DSA) Projected (Curr. DSA)

Gov. Invest. - Prev. DSA Gov. Invest. - Curr. DSA Contribution of other factors

Priv. Invest. - Prev. DSA Priv. Invest. - Curr. DSA Contribution of government capital

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 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Figure 5. The Federal Democratic Republic of Ethiopia: Market Financing Risk Indicators

GFN 1/ /
EMBI 2/ /
Benchmarks 14 570
Values 7 4612
Breach of benchmark No Yes

Potential heightened
liquidity needs Moderate

1/ Maximum gross financing needs (GFN) over 3-year baseline projection horizon.
2/ EMBI spreads correspond as of January 18, 2024.

PV of Debt-to-GDP Ratio PV of Debt-to-Exports Ratio

35 250

30
200
25

20 150

15
100
10
50
5

0 0
2025 2027 2029 2031 2033 2035 2025 2027 2029 2031 2033 2035

Debt Service-to-Exports Ratio Debt Service-to-Revenue Ratio

30 30

25 25

20 20

15 15

10 10

5 5

0 0
2024 2026 2028 2030 2032 2034 2024 2026 2028 2030 2032 2034

Baseline Market financing Threshold

Sources: Country authorities; and staff estimates and projections.

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Figure 6. The Federal Democratic Republic of Ethiopia: Indicators of Domestic Public Debt,
2020–2035
(in Percent)

Domestic Debt Service to Revenue

Domestic Debt to GDP Ratio Net Domestic Debt Issuance 1/
(Incl. Grants) g /
30 80 6.0 25.0

70 5.0
25 20.0
60
4.0
20 15.0
50
3.0
15 40 10.0
2.0
30
10 5.0
1.0
20
5 0.0
10 0.0

0 0 -1.0 -5.0
2020 2022 2024 2026 2028 2030 2032 2034 2020 2022 2024 2026 2028 2030 2032 2034 2020 2022 2024 2026 2028 2030 2032 2034
Historical realizations As a ratio to GDP (LHS)
Median of average projected values over the first five years of the forecast period As a ratio to domestic debt stock in prev. year (RHS)
across countries using the LIC DSF with non-zero domestic debt, end-2023

Borrowing Assumptions (Average Over 10-Year Projection) Value

Sources: Country authorities and staff estimates and projections

1/ Net domestic debt issuance is an estimate based on the calculated public gross financing need net of gross external financing, drawdown of assets, other
adjustments, and domestic amortization. It excludes short-term debt that was issued and matured within the calendar year.

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 THE FEDERAL DEMOCRATIC
REPUBLIC OF ETHIOPIA
SECOND REVIEW UNDER THE EXTENDED CREDIT FACILITY
January 16, 2025 ARRANGEMENT AND FINANCING ASSURANCES REVIEW—
SUPPLEMENTARY INFORMATION

Approved By Prepared by the African Department.

Ms. Annalisa Fedelino (AFR) and
Mr. Bjoern Rother (SPR)

This supplement provides an update on recent program and economic developments

since the issuance of the staff report on December 20, 2024. This update does not alter
the thrust of the staff appraisal.

1. Financing assurances. Staff assess that sufficient progress has been made
toward an agreement in principle (AIP) between the Official Creditor Committee (OCC)
and the Ethiopian authorities on a debt treatment consistent with program objectives,
under the provisions for Credible Official Creditor Processes of the Fund’s Financing
Assurances Policy. The OCC met on January 13, 2025, and the co-chairs (China and
France) outlined some potential debt treatment options. The OCC members provided
positive preliminary feedback on the options during the meeting. Based on the OCC
members' feedback, the co-chairs will finalize in the coming days the main parameters
of a debt treatment, consistent with program parameters, that would serve as the basis
for a subsequent agreement with the Ethiopian authorities.

2. Recent economic developments:

• Inflation stood at 17.0 percent year-over-year at end-December 2024, rising by
0.1 percentage points from the previous month, lower than anticipated with muted
passthrough from the exchange rate depreciation.
• The inaugural meeting of Monetary Policy Committee, whose role and
responsibilities are set out in the new NBE law, was held on December 31, 2024
(MEFP ¶20). In a press statement, the committee noted that recent inflation
outturns have been encouraging and the tight monetary and financial conditions.
The statement emphasizes maintaining a prudent monetary stance. NBE left the
policy rate unchanged at 15 percent and increased the cap on annual credit
growth from 14 to 18 percent.
• Fuel prices were raised by about 10 percent, as part of a plan to phase out fuel
subsidies with quarterly price increases (MEFP ¶36).

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THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

• The stock exchange opened on January 10, 2025, after a five-decade gap (MEFP ¶56). The
debut listings are Wegagen Bank and Ethio Telecom (of which Ethiopia Investment Holdings
aims to sell 10 percent of shares raising up to US$234 million). Government also plans to list
other state-owned enterprises.

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 Statement by the Executive Director, Mr. Regis O. N’Sonde, and by the Advisor of
the Executive Director, Mr. Mawek Tesfaye Mengistu, on
The Federal Democratic Republic of Ethiopia
January 17, 2025

I. Introduction

1. Our Ethiopian authorities express their sincere appreciation to the IMF Executive Board,
Management, and staff for their unwavering support of the country’s economic reform agenda.
The authorities also extend their gratitude to the country’s creditors for providing the necessary
financing assurances, as well as to other development partners for their financial and technical
support in helping advance their reform agenda.

2. The authorities' comprehensive reform program under their second Homegrown

Economic Reform Agenda (HGER 2.0, 2023/24–2027/28) is progressing smoothly, supported by
the Fund under the Extended Credit Facility (ECF). Early in the program, the authorities have
implemented bold reform measures aimed at restoring internal and external balances while laying
the groundwork for strong, sustainable, and inclusive private sector-led growth. Key reforms
include the transition to a market-clearing exchange rate, the adoption of an interest rate-based
monetary policy framework, the enhancing of domestic resource mobilization, the
implementation of their fuel and electricity subsidies reduction strategy, the acceleration of state-
owned enterprises (SOEs)’ reforms, and the strengthening of institutional and regulatory
frameworks to bolster trade and investment. Additionally, the authorities have launched an
interbank market for foreign exchange and local currency, marking another milestone.

3. The authorities' unwavering ownership of the reform program, along with strong political
commitment, thorough preparatory work, well-sequenced measures, a robust social protection
package embedded in the reform program, and effective communication, have contributed to the
early success of Ethiopia’s ambitious reform agenda. The parallel foreign exchange market
premium has declined significantly, foreign exchange supply to the official market is increasing,
and the external current account and primary fiscal balances have shown improvement. Looking
forward, the authorities’ policy efforts will focus on consolidating early reform gains, further
developing and improving the efficiency of the foreign exchange market, durably restoring price
stability and fostering financial sector stability. In this perspective, the authorities are committed
to deepening their resource mobilization efforts, further advancing SOE reforms, restoring public
debt sustainability—including by finalizing debt treatment negotiations with creditors—and
accelerating comprehensive structural reforms. These steps will strengthen economic resilience
and stimulate robust private sector-led growth.

II. Program Performance

4. Program performance has been satisfactory, with all quantitative performance criteria
(QPCs) and all but one Indicative Targets (ITs) for the second review being met. The four
QPCs—on the general government net primary balance, net international reserves, federal

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government tax revenue, and zero limit on the National Bank of Ethiopia (NBE)’s net credit to
the government—have been met with comfortable margins. Likewise, the ITs related to claims on
public enterprises by commercial banks, and the present value of external debt contracted or
guaranteed by the government, the NBE, and public enterprises have been met with large
margins. However, the IT on government contributions to the Productive Safety Net Programme
(PSNP) cash transfers was missed due to the limited time and preparation required to expand the
program’s coverage, identify beneficiaries, and absorb the significantly increased spending
envelope (about 0.5 percent of GDP). Nonetheless, the authorities are steadfast in their
commitment to intensify efforts in the coming months to ensure they meet the target for
government contributions to the PSNP set for the whole year, continuing strong dedication to
bolstering social safety nets and supporting vulnerable groups.

5. The implementation of structural benchmarks (SBs) is progressing well, with all five
benchmarks for end-September 2024 being observed, despite one experiencing a slight delay as
the authorities endeavor to incorporate related comments from the IMF staff. Additionally,
Parliament approved a new NBE proclamation (end-December 2024 SB) on December 17, 2024,
and the selection of an external auditor for the NBE’s 2022/23 financial statements has been
completed, with the publication of the statements expected by March 2025. This reflects a two-
month delay mainly due to the longer time required to finalize the procurement process. That
said, in addition to the four SBs already agreed upon for April–June 2025, the authorities have
committed to a new benchmark for June 2025 aimed at strengthening fiscal transparency and
public finance management by bringing the Road Fund into the budget process.

III. Recent Economic Development and Outlook

6. The economy continued to register remarkable strength, with real GDP growth at
8.1 percent in 2023/24, exceeding the 6.1 percent projected at the program’s approval and
surpassing the 7.2 percent growth in 2022/23. Growth has been broad-based, with agriculture
expanding by 7.0 percent, industry by 9.2 percent, and services by 7.7 percent. Agriculture
benefited from favorable weather and strong government support, including through irrigations
and farming inputs, while industry was driven by robust growth in electricity generation and
small-to-medium scale manufacturing. Activity in the service sector was fueled by telecom,
banking, air transport, and hospitality, boosted by the waning effects of the COVID-19 pandemic
and increased digitalization. Looking forward, strong growth is expected to continue, despite
near-term moderation due to the fiscal and macroeconomic adjustments in train. In the medium
term, growth is projected to return to around 8.0 percent as the benefits of ongoing reforms are
realized. The authorities’ commitment to reform and contingency planning is expected to mitigate
the impact of risks including those stemming from climate shocks, security challenges, and
intensified regional and geopolitical tensions.

7. Inflation continued its steady decline, reaching 16.9 percent in November 2024, down
from 19.9 percent in June 2024, due to tight monetary and fiscal policies, favorable supply-side
conditions, and well-sequenced adjustments to administered prices, while the pass-through from

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the exchange rate reform was lower than expected. Inflation is expected to spike in the near term
due to the lagged effects of exchange rate depreciation and administered price adjustments,
although lower than initially expected, before returning to single digits in the medium term as the
impact of tight policies and improved supply-side factors takes effect.

8. On the external sector front, the current account balance improved from a deficit of
2.9 percent of GDP in the last two years to a small surplus in the first quarter of 2024/25, mainly
driven by the substitution effect of the authorities’ foreign exchange policy reforms notably
through increased coffee and gold exports. The current account deficit is expected to widen in the
near term as pent-up import demand materializes following the easing of foreign exchange
supply, before stabilizing around 2 percent of GDP in the medium term as structural shifts and a
boost in exports take effect. Gross international reserves stood at US$ 3.4 billion (equivalent to
1.6 months of import coverage) at the end of October 2024, up from US$ 1.4 billion (0.7 months
of coverage) at end-June 2024.

9. The authorities’ revenue-led fiscal consolidation efforts are off to a promising start, with
a primary fiscal surplus reported by the Federal Government in the first quarter of 2024/25. The
positive outcome is primarily driven by a roughly 70 percent increase in tax revenues, resulting
from the implementation of a new VAT proclamation, revised excise tax rates, higher customs
revenues following exchange rate unifications, and strengthened administrative measures. In
contrast, key program-supported spending measures have not yet been fully implemented. The
primary balance is expected to show a deficit of 0.5 percent of GDP in 2024/25, with the deficit
projected to remain below 1 percent of GDP in subsequent years.

IV. Medium-Term Policy Priorities

4.1. Fiscal Policy and Debt Management

10. The authorities are committed to sustaining their revenue-led fiscal consolidation efforts
to create much-needed fiscal space for critical social and development spending while ensuring
long-term fiscal sustainability. They have already implemented bold tax policy measures in line
with their National Medium-Term Revenue Strategy (NMTRS 2024/25–2027/28), adopted in
September 2024. These measures include a new VAT proclamation, higher excise tax rates on
alcohol and tobacco, changes to the customs declaration exchange rate, and property tax reforms.
As a result, tax revenue is projected to increase by 1.2 percent of GDP in 2024/25, 0.2 percent
higher than initially anticipated. Preparations are underway for the next phase of revenue reforms,
including streamlining tax exemptions on imported intermediate inputs, revising the Corporate
Income Tax (CIT) to enhance compliance, rolling out digital tracking and tracing of excise
stamps, and introducing minimum alternative tax regimes to reduce avoidance and combat
evasion. Additionally, legal revisions for motor vehicle circulation taxes are being discussed,
while personal income tax (PIT) reforms are planned, focusing on revising the minimum
exemption threshold to ensure equity and fairness. The authorities are also committed to
strengthening tax administration and improving compliance, drawing from the recent 2024 Tax

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Administration Diagnostic Assessment (TADAT), with an emphasis on digitalization, enhanced
taxpayer registration, e-filing, and improved audit efficiency.

11. On the spending side, the authorities’ policy will focus on protecting the most vulnerable
from the unintended impacts of macroeconomic reform measures in the near-term. On November
26, 2024, they adopted a Supplementary Budget for 2024/25, in line with program parameters,
which includes a 1.5 percent of GDP fiscal package aimed at mitigating the social impact of
foreign exchange reform under implementation. This package expands and increases payouts
under the PSNP, provides temporary direct subsidies for selected food items and medicines,
gradually reduces fuel subsidies, increases fertilizer subsidies, and raises public sector salaries,
prioritizing the lowest earners. That said, to exit the current fuel subsidization regime within a
year, the authorities have been implementing a gradual fuel subsidy removal strategy since
October 2024, with the second fuel pump price increase implemented in January 2025.
Concurrently, the authorities will continue to strengthen their social safety net framework and
ensuring its sustainability. They will also prioritize completing ongoing public projects, centrally
selecting and prioritizing those in the pipeline, while strengthening the public investment
framework. Furthermore, the authorities are committed to further improving public finance
management and monitoring fiscal risks. To this end, they will conduct a mid-year review of the
Federal Government’s budget implementation and quarterly budget execution, utilizing the
Integrated Financial Management Information System (IFMIS). Additionally, the authorities will
bring the Road Fund, fuel taxes, and fuel subsidies into the budget process to further strengthen
public finance management, while introducing a Public Sector Obligations (PSO) framework of
SOEs.

12. The authorities have reiterated their commitment to restoring debt sustainability with the
objective of achieving a moderate risk of debt distress rating by the end of the program period.
They are actively engaging both official bilateral and private creditors to secure a timely debt
treatment agreement consistent with program parameters. To this end, the authorities submitted
formal debt treatment proposals to their official creditors while requesting an extension of the
debt service standstill until the Memorandum of Understanding (MoU) is signed. Following the
request, they have received assurance from their Official Credit Committee (OCC) co-chairs—
China and France—on the progress toward an agreement. The authorities see good prospects for
finalizing an agreement on key terms of debt treatment with official creditors in the near-term and
are poised to swiftly initiate the process of signing the related MoU. At the same time, they are
engaging with their Eurobond holders to secure debt treatment comparable with that of official
creditors. The authorities are providing necessary macroeconomic updates and are actively
discussing debt treatment options to facilitate parallel agreement. Simultaneously, they remain
committed to maintaining prudent debt management policies to prevent the accumulation of new
debt vulnerabilities and are considering developing a medium-term debt management strategy
with the IMF’s technical assistance.

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4.2. Monetary, Exchange Rate and Financial Sector Policies

13. The authorities reiterated their unwavering commitment to maintaining a tight monetary
policy stance to sustainably restore price stability. In this regard, they are notably advancing the
modernization of the monetary policy framework. On December 31, 2024, the newly established
Monetary Policy Committee (MPC) held its inaugural meeting following the new NBE
proclamation. The MPC kept the policy rate unchanged at 15 percent and raised the cap on annual
credit ceiling growth from 14 percent to 18 percent, citing declining inflation, tight monetary
conditions, and improved supply-side factors. The authorities have also made significant progress
in modernizing the framework, including conducting bi-weekly open market operations (OMO),
operationalizing standing facilities, launching an interbank money market, developing a treasury
bills market, and enhancing communication strategies. These measures, along with regular MPC
meetings and policy statements, aim to guide expectations and support the transition to an interest
rate-based monetary policy framework. Ongoing efforts to further modernize the framework
include the launch of a Central Securities Depository, adjustments to the reserve requirement
policy, strengthening the collateral framework, and enhancing analytical capacity. While the
authorities aim to achieve a positive real interest rate by Q1 2025 and fully transition to the new
framework, they also emphasize the critical role of direct policy instruments in controlling
inflation and managing expectations, especially given the current limitations in the transmission
of interest rate policy.

14. The transition to a flexible exchange rate regime is progressing well, with improved
foreign exchange supply to the market and significant narrowing of parallel market premium
from over 100 percent before the reform. The authorities have taken several key steps to
removing current account restrictions and supporting the new market-clearing exchange rate
regime. They have fully eliminated the requirement for exporters to surrender retained foreign
exchange within one month, providing exporters with greater flexibility to manage their earnings
and supporting the determination of the market-clearing exchange rate. In November 2024, the
Franco Valuta import system, initially introduced to mitigate potential inflationary pressures, has
been removed to enhance foreign exchange supply through official banking channels.
Additionally, the NBE has granted licenses to twelve non-bank foreign exchange bureaus, five of
which are now operational, fostering increased competition. Transitional arrangements are also in
place to settle legacy Letters of Credit (LCs) related to fuel imports prior to the exchange rate
reforms, with commercial banks now solely responsible for settling LCs opened since the reform.

15. The authorities have reiterated their commitment to further measures aimed at improving
the efficiency of the foreign exchange market and fostering market development, including
undertaking a foreign exchange market survey in collaboration with IMF staff to identify
impediments and inform future reforms, work with banks to establish service standards, bringing
oversees money transfer operators into the official market, and review calculation methodology
of indicative exchange rate to align with best practice. They are also strengthening market
monitoring and enforcement to ensure compliance, including following up with banks to meet the
Net Open Position (NOP) requirements by June 2025 deadline. Moreover, the authorities are

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working to remove three out of five long-standing exchange restrictions identified in the recent
IMF Article VIII assessment during the program period, while engaging other public agencies to
find alternative solutions for the remaining two measures. Further, the authorities have reiterated
commitment to limiting foreign exchange interventions to addressing disorderly market
conditions, demonstrated by only one intervention since the adoption of the new regime five
months ago.

16. The financial sector remains sound and stable, despite a recent increase in banks' non-
performing loan (NPL) ratios following the implementation of tightened asset classification and
provisioning directives. The authorities have already implemented bold reforms at the
Commercial Bank of Ethiopia (CBE), the largest publicly owned bank, with support from the
World Bank under the Financial Sector Strengthening Program (FSSP). These reforms have
bolstered the bank’s financial position and improved its operational and governance structures.
Similarly, reforms are underway to implement a strategic plan for the Development Bank of
Ethiopia (DBE), including a revised business model that incorporates a market-based funding
strategy and plans to phase out the mandatory purchase of DBE bonds by financial institutions by
December 2025. Commercial banks are also diligently working to reduce their short NOP, with
CBE’s position improving as legacy fuel-related LCs are paid down and disbursements from the
World Bank are released. The authorities remain committed to further strengthening monitoring
and oversight of the sector, including by upgrading regulatory requirements, adopting capital
framework that is consistent with Basel II standards. Additionally, in December 2024, Parliament
passed a new Banking Business Proclamation, which allows foreign investment in the domestic
banking sector and introduces a resolution framework, among other provisions, further enhancing
the resilience and development of the sector.

4.3. Structural Reforms and Climate Agenda

17. The authorities are implementing several structural reforms underpinned by their HGER
2.0 strategy to support stronger, inclusive, and private sector-led growth, complemented by
ongoing macroeconomic policy reforms. They have opened various sectors, including banking,
telecom, and logistics, to both domestic and foreign investment, while upgrading legal and
regulatory frameworks and streamlining bureaucratic procedures to meet international standards.
Additionally, sector-specific reforms are underway to enhance production and productivity,
including in agriculture, mining, tourism, Information and Communication Technology (ICT),
and manufacturing. In April 2024, Parliament approved a proclamation to regulate Special
Economic Zones (SEZs), fostering investment, trade facilitation, and infrastructure development.
Furthermore, the authorities have liberalized several economic sectors to attract investment and
are actively working towards WTO accession. Importantly, the authorities have launched
Ethiopian Stock Exchange on January 10, January 2025, and Ethio telecom’s initial public
offering of about 10 percent share is already floating in the market, a significant landmark
development. Further, Parliament passed two critical proclamations in December 2024 on
banking business and the new NBE proclamation, respectively. The Banking Business
proclamation opened the sector to foreign investors while introducing a resolution framework to

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enhance the stability of the banking sector. The new NBE proclamation strengthens the bank’s
governance, autonomy, and transparency, while reaffirming the primacy of price stability among
the institution’s key mandates.

18. The authorities are advancing reforms in SOEs to enhance transparency, strengthen
governance, and improve the entities’ financial position. Their decision to consolidate the SOE
portfolio under the Ethiopian Investment Holding (EIH), the government’s strategic investment
arm, while delegating SOE policy oversight to the Public Enterprises Holding and Administration
Agency (PEHAA) under the Ministry of Finance, is driven by this objective. Building on the
IFRS reporting requirements for SOEs, EIH is preparing consolidated financial statements for
2022/23, enhancing transparency. Future efforts will concentrate on improving governance, cost
efficiency, and transparency, with a comprehensive legal framework for SOEs currently under
development. It should be noted in this context that Ethiopia’s multi-year electricity tariff plan is
being implemented with the goal of achieving cost recovery within the program period, supported
by reforms aimed at boosting sector efficiency. In parallel, efforts to privatize nine sugar factories
are progressing, and railway sector reforms will focus on improving infrastructure management
and operations, including through greater private sector participation.

19. Enhancing resilience to climate shocks is on the top of the authorities’ reform agenda.
They are working diligently to enhance climate adaptation and mitigation to meet their ambitious
Nationally Determined Targets. They continue their reforestation campaign and a deliberate tree
planting exercise under their flagship Ethiopia’s Green Legacy Initiatives. The authorities are also
reviewing the IMF’s C-PIMA and World Bank’s CCDR recommendations to inform their policy
priorities. Nevertheless, limited climate financing remains a prohibitive constraint, prompting the
authorities to call on their external partners for support in achieving their ambitious climate goals.

V. Conclusion

20. The Ethiopian authorities have reiterated firm commitment to consolidating their early
successes achieved through rigorous implementation of ambitious reforms under their Fund-
supported program and maintaining reform momentum in the period ahead. They reaffirm their
dedication to the objectives of the ECF arrangement, including firmly entrenching price stability,
further strengthening the flexible exchange rate system, and restoring debt and external
sustainability. Additionally, the authorities plan to intensify efforts to mobilize domestic
resources, creating space for critical social and development spending, while steadfastly
implementing structural reforms to foster strong, sustainable, and inclusive private sector-led
growth. While executing their policy and reform agenda, the authorities count on the country’s
creditors to swiftly finalize the debt restructuring process in train.

21. In light of their strong program performance and renewed commitment to the program
objectives, the authorities seek the Executive Directors’ support to completing the second review
under the ECF and associated requests. We would appreciate Executive Directors’ favorable
consideration of the authorities’ requests.

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