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NewsIMF: Ethiopia's Debt Restructuring Contingent on Creditor Assurance

IMF: Ethiopia’s Debt Restructuring Contingent on Creditor Assurance

Creditors’ assurance is required before Ethiopia’s debt restructuring request materializes, the International Monetary Fund (IMF) says.

The prerequisite is expected to lower Ethiopia’s expectations.

Julie Kozack, director of communications at the IMF, revealed the requirements during a press briefing on May 11, 2023.

“A new program would require clear commitments from development partners and financing assurances from creditors under the G20 Common Framework to ensure that it can meet its objectives,” Kozack stated. The Director was pleased with the progress of peace and stability in northern Ethiopia.

Due to the war in northern Ethiopia, the IMF withheld around USD 2.5 billion from its credit window.

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“Ethiopia has been subject to multiple shocks, including six consecutive years of drought. It’s also had domestic conflict, and it has also suffered from food price shocks that came after Russia’s invasion of Ukraine,” Kozack said.

She says the country faces significant economic challenges, including food insecurity, humanitarian needs, inflation, and foreign currency shortages.

“We do welcome the strong progress toward restoring lasting peace in Ethiopia, and we also welcome the authority’s homegrown economic reform agenda. It’s an ambitious reform program that aims to address Ethiopia’s key macroeconomic vulnerabilities and unlock Ethiopia’s considerable economic potential,” she said.

The IMF has continued to issue contradictory statements, according to insiders and experts The Reporter reached out to, primarily because the United States did not approve Ethiopia’s debt restructuring request.

Ethiopia made the request in 2021, but despite positive comments, the creditors committee and the IMF have yet to take action.

“IMF is playing the ‘cat and mouth’ game. Kozack’s statement indicates that some creditors agreed to restructure Ethiopia’s’ debt, while others are still not on board. While the IMF is saying creditors’ assurance is required, the creditors committee is saying that IMF approval is required,” an insider who spoke to The Reporter on the condition of anonymity said.

The real reason, according to the insider, is the failure of US officials to reach agreement over Ethiopia’s debt restructuring request. “If the US gave its approval, the IMF and creditors committee could immediately process Ethiopia’s request for debt restructuring.”

Ethiopia’s request for debt restructuring is being evaluated by the US Treasury Department, State Department, and security agencies, each from a different perspective.

The Treasury Department is focused on the financial implications, the State Department on the diplomatic implications, and the security agencies on the national security implications, according to sources.

“The varying viewpoints among these entities may pose challenges for the US in making a decision on Ethiopia’s request.  Approval from all three is required before the US can grant the request, which may necessitate extensive negotiation and compromise to reach a consensus,” insider said.

“As the US nears its election, it is unlikely that these three departments agree, unless they do it sooner. This is because US Africa policy and foreign relations would take center stage during the campaigns,” the insider added.

The current Ethiopian government prefers the Republicans to win, according to the insider.

“The Ethiopian government is unhappy with the Democrats. However, it has no choice but to work together because reconstruction, DDR, and humanitarian funds are also expected from western countries and donors.”

In April, a mission from the IMF evaluated Ethiopia, after which discussions continued at the Spring Meeting last month, where officials of the Ethiopian Ministry of Finance, the National Bank of Ethiopia (NBE), and macroeconomic advisors to Prime Minister Abiy Ahmed (PhD) engaged in lengthy discussions.

IMF director Kristalina Georgieva and World Bank president David Malpass demanded that Ethiopia unify its currency as a prerequisite for debt restructuring during the Meeting. Finance Minister Ahmed Shide assured the International Monetary Fund and World Bank that Ethiopia would take “bold measures” to reform the country’s currency exchange system.

Nonetheless, in an interview with state media last week, Mamo Mihretu, governor of the NBE, refuted the claim that the government did not discuss the exchange rate regime.

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