Ethiopia's $4.9 Billion Debt Relief: A New Financial Chapter

Ethiopia is set to receive $4.9 billion in debt repayment relief as it completes its restructuring exercise. The country has realigned its debt overhaul after securing a new IMF financing programme. The central bank's decision to let the birr float freely has sparked concerns over potential inflation increases.

Ethiopia is on the cusp of receiving $4.9 billion in debt repayment relief as it completes its debt restructuring exercise, according to State Finance Minister Eyob Tekalign.

The East African country has rejuvenated its lagging debt overhaul efforts after securing a fresh financing programme from the International Monetary Fund (IMF). 'We will sign and finalise with each individual creditor country over the next few months,' Eyob told Reuters, referencing the anticipated savings.

Data from the finance ministry indicates that Ethiopia's total external debt stood at $28.38 billion as of March. Prime Minister Abiy Ahmed elaborated on the country's economic reforms during a televised address, citing an expected $200 million savings from restructuring its $1 billion Eurobond. He defended the recent shift to a market-determined foreign exchange rate, stating that it aims to eliminate discrepancies between official and black market rates without causing currency devaluation.

The central bank allowed the Ethiopian birr to float freely on Monday, fulfilling a key condition for securing financial support from both the IMF and other creditors. Since the policy change, the birr has depreciated 31.5% against the dollar, trading at 83.94 per greenback. The Commercial Bank of Ethiopia highlighted this on Friday, while economic analysts expressed concerns about potential inflation surges. Abiy emphasized that the move was to unify disparate markets rather than devalue the currency. Following the foreign exchange liberalisation, local governments have clamped down on price hikes to mitigate inflation's impact on low-income households. Both the government and its creditors believe that these reforms will bolster the private sector's role in the economy and foster long-term growth.

(With inputs from agencies.)