IMF deal a boost for Ethiopia’s economic liberalization
Ethiopia’s IMF deal is a notable step towards addressing its external imbalances and to opening up the country’s economy.
Ethiopia's sprawling capital Addis Ababa
Ethiopia’s efforts to open its economy were bolstered in mid-December when the International Monetary Fund agreed a new lending programme which, coupled with the launch of the Addis Ababa stock market in 2020, will encourage greater foreign investor participation in, and the diversification of, one of Africa’s fastest growing economies.
The IMF is expected to agree this week a $2.9 billion financing package for Ethiopia, a country whose investment-led model has resulted in rapid economic growth but substantial macroeconomic imbalances.
Ethiopia has relied on domestic resources rather than foreign investment to fuel its rapid growth – foreign banks and portfolio investors are still forbidden – but the IMF agreement marks an ideological shift in thinking which may accelerate plans to liberalize its economy.
“It is a big deal because Ethiopia swore that they wouldn’t take an IMF programme, and it also shows the IMF is evolving on exchange rate policy,” says Bryan Carter, head of emerging market fixed income at BNP Paribas Asset Management. “[The IMF’s] number one reason for being is to give short-term balance of payments loans for things like FX flexibility.”