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Ethiopia Lifts Forex Restrictions to Secure IMF Funding and Debt Overhaul

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Ethiopia’s central bank announced on Monday that it has lifted restrictions on the foreign currency market, a crucial step towards securing funding from the International Monetary Fund (IMF) and progressing on a long-delayed debt overhaul.

Last December, Ethiopia, grappling with high inflation and chronic foreign currency shortages, became the third African economy in as many years to default on its debt. The nation has been in discussions with the IMF since last year to establish a new lending program after the previous fund-supported program agreed upon in 2019 was abandoned due to conflict in the northern Tigray region. This conflict concluded with a peace deal in November 2022.

Ethiopia Lifts Forex Restrictions to Secure IMF Funding and Debt Overhaul

“Banks are henceforth allowed to buy and sell foreign currencies from/to their clients and among themselves at freely negotiated rates, and with the NBE (National Bank of Ethiopia) making only limited interventions,” the central bank stated.

As part of the reforms, Ethiopia will receive $10.7 billion in external financing from its development partners, according to Mamo Mihretu, the central bank governor, in a video released online. “This support includes exceptional financing from the IMF, the World Bank, and Creditors,” he said. “The IMF and World Bank are both providing exceptional and front-loaded funding support that will be among their highest such allocations on the African continent.”

There was no immediate comment from the IMF.

Africa’s second-most populous country requested a debt restructuring under the Group of 20’s Common Framework process in early 2021, but progress was hindered by the two-year civil war in the northern Tigray region. The government in Addis Ababa had already unveiled some economic reforms, which analysts say are linked to the negotiations for a new IMF reform program, including the adoption of an interest rate-based monetary policy earlier this month.

Ethiopia’s decision to remove foreign currency restrictions is seen as a significant step in stabilizing the country’s economy, which has been strained by multiple challenges. The move is expected to help alleviate the chronic foreign currency shortages that have plagued the nation and foster economic stability.

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