How the IMF Program Shapes Ethiopia's Birr and Forex Policy

The IMF approved a 48-month Extended Credit Facility for Ethiopia on July 29, 2024. Its original value was SDR 2.556 billion, about US$3.4 billion at approval. The first disbursement was about US$1 billion, with later amounts released after program reviews.

A separate figure, US$10.7 billion, is sometimes called an IMF and World Bank package. That is not precise. The IMF staff report used US$10.7 billion as an estimate of Ethiopia's residual external financing gap through 2027/28. The gap was expected to be covered by several sources, including the IMF, World Bank, creditors and other development partners. It was not one cheque from one institution.

The government's Homegrown Economic Reform Agenda existed before the 2024 IMF arrangement. Ethiopian authorities chose the broad direction, including a more market-based economy, a modern monetary framework and stronger private-sector growth. The IMF program finances part of that agenda and attaches measurable conditions to it.

That distinction prevents two misleading explanations. It is wrong to say the IMF independently runs Ethiopia's exchange rate. It is also wrong to describe the financing as unconditional support. The government signs a letter of intent, accepts targets and reports performance to the IMF Executive Board.

When the program began, Ethiopia moved from an administered exchange-rate system toward a market-determined rate. The Birr adjusted sharply, banks were allowed to set their own prices and many foreign-exchange restrictions were relaxed. The aim was to reduce chronic shortages, bring more flows through banks and remove the large incentive created by the gap with the parallel market.

A market-determined rate does not mean the central bank disappears. The NBE publishes an indicative rate calculated from bank transactions, supervises authorized dealers and can use transparent auctions. It is not meant to defend a fixed number by selling reserves whenever the market moves.

The program uses regular reviews rather than releasing all the money at once. Each review looks at quantitative targets, policy actions and structural reforms. If the Board completes the review, the next tranche becomes available. If performance or financing conditions change, the program can modify targets or rephase access.

The fifth review was completed on July 1, 2026. It released about US$464 million and brought total IMF disbursements under the arrangement to about US$2.647 billion. About US$200 million was brought forward to help Ethiopia respond to higher fuel costs linked to the Middle East conflict, while the overall US$3.4 billion program size stayed unchanged.

The program includes a continuous performance criterion that sets a zero limit on NBE foreign-exchange intervention outside auctions, subject to defined exceptions. In ordinary terms, the central bank is expected to transact with authorized dealers through open, price-based auctions rather than negotiate selective sales that could recreate different exchange rates.

The rule does not ban every central-bank transaction. Government-account operations and specific remaining pre-reform fuel obligations are treated separately, and the intervention strategy allows action for disorderly market conditions. The point is transparency and a market-clearing price, not an absolute prohibition on reserve management.

Foreign-exchange reform depends on the rest of the economy. The program also covers monetary financing of the budget, inflation control, tax collection, public-enterprise risks, debt restructuring, bank supervision and reserve accumulation. A weaker Birr can improve the incentive to export, but it also raises the local cost of fuel, fertilizer, medicine and other imports.

That is why the reviews connect exchange-rate policy to interest rates and the government budget. If higher import prices feed a broad rise in domestic prices, monetary policy may need to tighten. If fuel costs create a fiscal gap, the program calls for subsidy reform and targeted protection rather than renewed central-bank financing.

By the fifth review, IMF staff reported stronger exports, higher reserves, better government revenue and declining inflation before the latest external shock. The NBE also reported a large rise in formal foreign-exchange inflows during the first year of reform. Those are meaningful gains because they improve the amount of hard currency available to the economy.

They do not prove that every household or business is better off. Export values can rise while imported essentials become more expensive. Reserves can improve while a small importer still struggles to obtain a bank allocation. Macroeconomic progress and daily financial pressure can exist at the same time.

Currency depreciation changes prices quickly in an import-dependent economy. Fuel, transport and imported inputs affect other goods, so the burden can reach households that never buy foreign currency. Tax measures and subsidy changes can add another layer of pressure.

The IMF program recognizes this risk and includes protection for vulnerable households as an explicit objective. The fifth-review documents say fuel-price changes should consider social impact and the government's ability to put targeted measures in place. Whether that protection reaches people on time is a question of implementation, and it deserves the same scrutiny as the headline reserve and growth figures.

Gold exports have helped the NBE accumulate foreign exchange, but the central bank has paid premiums and carried risks on its own balance sheet. The fifth-review program calls for an NBE recapitalization plan that includes phasing out premiums and subsidies for gold purchases. The proposed target date for agreeing that plan is the end of September 2026.

This is not simply a mining-policy detail. If the central bank pays above-market prices or carries losses, its financial position can weaken and monetary policy can become harder to run. The tradeoff is that a poorly managed exit could push some gold back into informal channels.

The next review is scheduled to take place on or after October 15, 2026. The most useful questions are concrete: Is the interbank foreign-exchange market trading? Are auctions transparent and predictable? Is formal supply meeting more real demand? Is the NBE gold and recapitalization plan published? Are inflation and household support moving in the right direction?

The Birr's price is only one result. A functioning reform should also narrow the incentive to use the parallel market, make bank access more predictable and preserve enough reserves to absorb shocks. Those tests are harder than announcing a new directive, but they are closer to what households and businesses experience.