IMF warns Ethiopia of risks to $3.4B reform program amid falling foreign aid, forex pressure, inflation, and privatization delays.
July 15, 2025 – The International Monetary Fund (IMF) has raised concerns that Ethiopia’s $3.4 billion loan program may face setbacks. This comes despite the country meeting key reform targets, as challenges mount from declining foreign aid, fragile security, and a growing parallel currency market.
In its latest review, the IMF praised the Ethiopian government for making notable economic adjustments, including cutting subsidies, tightening monetary policy, and reforming tax systems.
However, the Fund warned that progress could slow due to reduced donor support and fiscal pressures. “The outlook remains subject to downside risks given security challenges and declining donor support,” said IMF Deputy Managing Director Nigel Clarke.
Foreign aid, which made up 12% of Ethiopia’s GDP a decade ago, has dropped to below 4%, with further reductions expected as agencies like USAID scale back. Nearly one in five Ethiopians now depends on humanitarian aid, yet the UN’s response plan remains underfunded.
The IMF noted Ethiopia’s efforts to liberalize the foreign exchange market but flagged persistent structural issues. These include a 2.5% central bank commission on FX sales, limited interbank liquidity, and high transaction costs. As a result, the parallel market premium has widened to around 15%, complicating currency stability.
Inflation has declined faster than anticipated, driven by strict credit controls and monetary tightening. Still, the IMF urged Ethiopia to accelerate its shift to a modern, interest-rate-based policy framework and to improve communication to build market confidence.
The Fund also expressed concern over delayed privatization and falling foreign direct investment (FDI), both of which are critical for rebuilding reserves and closing the balance of payments gap.
On a positive note, the IMF raised its export forecast. Exports of goods and services are now projected to reach 12% of GDP in the 2024/25 fiscal year, up from 9.6% in the previous review.
Earlier this month, Ethiopia received a $262 million disbursement from the IMF program—evidence of ongoing support despite the reform headwinds.
