The International Monetary Fund (IMF) on Thursday approved additional $411 million loan for Ethiopia to tackle COVID-19 after a massive $2.9 billion loan last year.
As many as 40 African countries, including Nigeria, Ethiopia and Egypt, the continent’s biggest nations, have embarked on a borrowing spree to respond to COVID-19 and its economic fallout.
The money is needed in most African countries, although there are fears that it may be looted or diverted to less productive projects with less oversight.
In a statement, the IMF said it was lending additional millions of dollars to Ethiopia because the East African nation “is facing a pronounced economic slowdown and an urgent balance of payments need owing to the COVID-19 pandemic.”
The new loan to Ethiopia just months after it got $2.9 million loan from the IMF last year was was secured under the Rapid Financing Instrument.
IMF has said that type of loan does not come with the same stringent conditions as the other ones.
Still, neither Ethiopia nor the IMF have disclosed repayment conditions.
Apart from the new loan, the IMF Executive Board also approved a re-phasing of disbursements of the previous $2.9 billion loan which was secured under the Extended Credit Facility (ECF) and Extended Financing Facility (EFF) arrangements.
In addition, Ethiopia will benefit from the IMF Executive Board decision of April 13, 2020 to provide debt service relief to the poorest and most vulnerable countries that are eligible for grant assistance under the Catastrophe Containment and Relief Trust (CCRT). As a result, the Board on Thursday approved Ethiopia’s request for relief under the CCRT on debt service falling due to the IMF until October 13, 2020 of about US$12 million. This relief could be extended up to April 13, 2022, subject to the availability of resources under the CCRT.
In a statement, Mr. Tao Zhang, Deputy Managing Director and Chair, said Ethiopia has shown “good progress under the extended arrangements with the Fund, which aim to address external vulnerabilities and transition to a private sector-led growth model.”
“Fund emergency support under the Rapid Financing Instrument and debt relief under the Catastrophe Containment and Relief Trust would help address balance of payments pressures and create fiscal space for essential pandemic-related expenditures. Participation in the G20 debt relief initiative could provide additional resources to respond to the pandemic,” Mr. Zhang added.
According to him, as Ethiopia continues to borrow to finance government spendings, “a temporary widening of the budget deficit is appropriate.”
“The immediate priority is to increase spending on health care and provide emergency assistance, including food assistance,” he said.
“The National Bank of Ethiopia (NBE) has appropriately provided liquidity to banks to maintain f inancial stability. Once the crisis abates, monetary policy will need to be tightened significantly to achieve the single-digit inflation objective. Strong efforts are needed to address the real overvaluation of the exchange rate, allowing the exchange rate to act as a shock absorber,” Zhang added.5