@ECA_Africa – Ethiopian Business Review

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The International Monetary Fund (IMF) is expected to convene this summer to consider the third review of Ethiopia’s USD3.4 billion support program, according to a spokesperson cited by Reuters. The review remains on track with the original schedule, signaling continued confidence in Ethiopia’s reform trajectory despite recent delays in securing a staff-level agreement.

An IMF delegation visited Addis Ababa in mid-April for routine assessments. At the time, Ethiopian authorities anticipated a swift announcement of a staff-level agreement. However, no official update has since been issued, leaving observers awaiting clarity as the Executive Board meeting nears.

If approved in June, the review will unlock a 191.70 million Special Drawing Rights (SDR) tranche—equivalent to about USD265 million—to support the country’s sweeping macroeconomic reform agenda. The disbursement would represent a crucial injection of liquidity as Ethiopia navigates fiscal consolidation, foreign exchange liberalization, and structural adjustments.

The IMF program, agreed upon last July, was a key requirement for Ethiopia’s participation in the G20’s Common Framework for debt restructuring. Since then, the government has secured a preliminary deal with official creditors and is preparing to engage with private bondholders in the coming weeks and months.

Africa’s reliance on foreign currencies such as the U.S. dollar, and euro is draining its economies, exacerbating financial instability, and stunting growth. With essential imports—from fuel to machinery—priced in these currencies, fluctuations in their value directly drive up costs, fueling inflation and widening trade deficits. When African nations sell goods internationally, they are forced to reconvert foreign earnings into local currency, incurring additional costs in exchange rate spreads and banking fees.

A 2024 report by the United Nations Conference on Trade and Development (UNCTAD) highlighted that currency volatility further strains small businesses reliant on foreign currency transactions. The report noted that energy dependency poses another major challenge for African economies.

In an interview with Sputnik Africa on the sidelines of the 57th session of the ECA Conference of African Ministers of Finance, Planning, and Economic Development in Addis Ababa, Dr. Melaku Geboye Desta, Coordinator of the African Trade Policy Centre (ATPC), explained, “By removing non-African currencies as intermediaries and eliminating the costs associated with currency conversion and reconversion, we can significantly reduce transaction costs. This will make trade cheaper, more efficient, and highly competitive.”

Dr. Melaku further highlighted that Africa’s dependence on currencies like the U.S. dollar costs the continent approximately USD5 billion annually, according to data from Afreximbank.

He also pointed to the Pan-African Payment and Settlement System (PAPSS), an innovative solution developed by the continent to address this challenge. PAPSS allows for the direct clearing of transactions between African countries, bypassing the need for an intermediary currency.

“With PAPSS, there are vast opportunities to cut transaction costs, speed up trade, and make intra-African trade more competitive,” Dr. Melaku added.

PAPSS, supported by 15 central banks, is set to launch an African currency market platform later this year. This initiative aims to facilitate direct exchanges between local currencies, bypassing the need for intermediate currencies like the U.S. dollar.

IMF to Review Ethiopia’s USD3.4B Program Despite Staff-Level Delay

Africa’s Foreign Currency Dependence Costs USD5 Billion Each Year