While Nigeria turns away, IMF deal unlocks $17bn funding for Ethiopia

While Nigeria continues to stay away from entering into deal with the International Mometary Fund (IMF) to ease its severe foreign exchange shortage, peer Ethiopia is reaping the windfall of a bail out package reached with the Fund.

According to reports, the World Bank has pledged $16.6 billion funding to support Ethiopia over three years, providing a much needed fillip to eastern Africa’s biggest economy as it restructures its debt and opens up the nation to foreign investors.

The International Development Association’s assistance includes a $1 billion grant and a $500 million concessional loan to help the Horn of Africa nation strengthen its financial sector and improve fiscal transparency, according to a World Bank statement on Tuesday.

The announcement came hours after the International Monetary Fund agreed to a $3.4 billion bailout package.

“The World Bank is committed to supporting Ethiopia’s aspiration of becoming a middle-income country,” the lender said. “Subject to the board’s approval of new operations and availability of IDA resources, this implies a total financial package of over $16.6 billion in undisbursed and future commitments available over the next three years.”

With its oil wealth, Nigeria should be awash with foreign currency. But years of economic mismanagement have left the country with a debilitating shortage of dollars. In an attempt to fix the problem, President Bola Tinubu relaxed longstanding foreign exchange restrictions shortly after taking office in May 2023.

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The local naira currency, pegged for years at an artificially high level against the dollar, has since fallen 70%. Tinubu’s goal was to trigger an influx of foreign capital and eventually make Nigeria a more attractive investment destination. The near-term impact was to send inflation surging to a 28-year high, leading to a cost-of-living crisis that could potentially undermine stability in Africa’s most populous nation.

In Ethiopia, Abiy Ahmed, the prime minister, initiated a swathe of economic reforms after coming to power in 2018 to open up Ethiopia’s $164 billion economy that’s been ravaged by wars and weather-related calamities for decades. Africa’s most-populated nation after Nigeria has about $28.4 billion of external debt and has been seeking to restructure its loans since 2021.

“Addressing the distortions created by Ethiopia’s deep structural imbalances will take time and a challenging transition period,” Jacques Nel, an economist at at Oxford Economics Africa, said in an report on Tuesday. “That said, the front-loaded loan facility and accompanying debt-service restructuring will mitigate the spillover effects of the comprehensive reform exercise.”

The government needed an IMF program in place before it could resume debt-restructuring talks under the Group of 20-backed Common Framework.

Official creditors have committed to restructure loans to Ethiopia in a way that’s consistent with the IMF’s program. In Africa, Ghana and Zambia have also signed up to overhaul their debt using the G20 mechanism.

The support for Ethiopia from the Washington-based lenders came after the central bank freed trading in the nation’s currency — the birr. The step echoed a similar measure by Egypt in March, when it allowed its currency to weaken almost 40%, enabling an $8 billion IMF bailout.