INSUBCONTINENT EXCLUSIVE:
Ethiopia has embarked on a daring economic journey, supported by a $3.4 billion Extended Credit Facility from the International Monetary
At its core lies the adoption of a market-determined exchange rate, ending years of strict government control.The National Bank of Ethiopia
allowed the birr to float freely on July 29, 2024
policy, addressing long-standing macroeconomic imbalances.Alongside the exchange rate reform, Ethiopia is implementing other crucial changes
These include transitioning to an interest rate-based monetary policy and eliminating monetary financing of government deficits.Ethiopia
Launches $3.4 Billion IMF-Backed Economic Reform
(Photo Internet reproduction)The country also plans to enhance banking efficiency and competition while strengthening state-owned
This package includes contributions from the World Bank and other creditors.The IMF has already released an initial disbursement of $1
A further $345 million awaits approval from the IMF Executive Board.Early results of the reforms show promise, but challenges remain
The official exchange rate has largely converged with the parallel market rate.This convergence addresses a long-standing economic
distortion that hampered growth and investment
Foreign currency shortages, a major obstacle to economic activity, are beginning to ease.However, concerns about increased inflationary
These pressures particularly affect the urban poor and low-wage workers.Some sectors, such as real estate and imports, have already raised
These include strengthening macroeconomic stability and improving foreign exchange availability.The government also hopes to support
sustainable economic growth and attract foreign direct investment
experiences in other African nations
Ghana faced prolonged economic instability and inflation following currency devaluation.Zambia initially experienced inflationary pressures
but saw improved foreign exchange availability over time
These experiences highlight the importance of maintaining strong foreign exchange reserves.Coordinating monetary and fiscal policies
effectively is also crucial
Consistent implementation of reforms is crucial.Careful management of inflationary pressures will be necessary
The government must also cushion vulnerable populations from potential negative impacts.
