Ethiopia Secures $4.9 Billion Debt Relief Amid Economic Reforms

Ethiopia is set to receive $4.9 billion in debt repayment relief following its recent restructuring exercise. State Finance Minister Eyob Tekalign announced that the country has resumed its debt overhaul after securing new IMF financing. The reforms include a shift to a market-determined foreign exchange rate, raising both economic optimism and inflation concerns.

Ethiopia will benefit from $4.9 billion in debt relief upon completing its current restructuring exercise, according to State Finance Minister Eyob Tekalign. The East African nation has revived its long-stalled debt overhaul after securing a new International Monetary Fund financing programme.

'We will sign and finalize with each individual creditor country over the course of the next few months,' Eyob told Reuters, mentioning the anticipated savings. Official data shows that the total external debt was $28.38 billion as of March.

Prime Minister Abiy Ahmed elaborated on recent economic reforms during a televised event, noting that the restructuring would also include $200 million in savings from its $1 billion Eurobond. Eyob further stated that this would be achieved through a 'nominal reduction' in the bond's value.

Defending the shift to a market-determined foreign exchange rate, Abiy emphasized that the move was not a devaluation but rather an effort to narrow the gap between official and black market rates. The central bank's decision to let the birr float freely was a key requirement for securing financial support from the IMF and other creditors.

The birr has since depreciated by 31.5% against the dollar, raising concerns about inflation. The official rate now stands at 83.94 per dollar. To mitigate inflationary impacts, especially on low-income households, some local governments have intervened to control price hikes. The federal ministry of trade has closed over 700 shops for 'unjustified price hikes and hoarding.'

Despite these challenges, the government and its creditors maintain that the liberalisation efforts will foster greater private sector contributions and promote long-term economic growth.

(With inputs from agencies.)