Ethiopia Has Received $464m From IMF, but Inflation Is Rising Again

The International Monetary Fund cleared $464 million for Ethiopia on July 1, plus a $200 million rephasing tied to war-driven fuel costs, lifting total disbursements under the country’s 48-month, $3.4 billion Extended Credit Facility to about $2.647 billion since July 2024. The release follows a fifth program review that found all quantitative performance criteria met. But it lands as headline inflation has rebounded for three straight months, from a low of 9.7 percent in February to 11.7 percent in April and 13.4 percent in May, driven by transport costs up 13 percent and food prices up nearly 15 percent. The birr has weakened roughly 19.5 percent against the dollar over the past year, trading near Br160. Public debt is projected to fall from 50.5 percent of GDP to 40.8 percent by 2026/27 as reserves slowly rebuild.

The International Monetary Fund’s Executive Board signed off on roughly $464 million in fresh financing for Ethiopia on July 1, closing out the fifth review of the country’s reform program and confirming that Addis Ababa has, for now, kept faith with the fund’s targets.

The timing, though, is awkward. Inflation, which the National Bank of Ethiopia had wrestled down to single digits earlier this year, has rebounded for three consecutive months, and the question hanging over the disbursement is whether the bank can hold its nerve long enough for the money to matter.

The IMF paired the $464 million tranche, drawn under Ethiopia’s 48-month Extended Credit Facility, with a rephasing of about $200 million originally scheduled for later in the program. That money was moved forward specifically to help the country absorb higher fuel import costs stemming from the war in the Middle East, the fund said in its review statement.

Combined, the roughly $664 million package brings total disbursements under the arrangement to about $2.647 billion since the four-year, $3.4 billion facility was approved in July 2024.

Ethiopia’s Reform Program, By The Numbers Latest disbursement:  $464m (SDR 342.05m), plus $200m rephased for fuel-cost relief Total disbursed since July 2024:  ≈$2.647 billion of a $3.4 billion facility Headline inflation:  9.7% (Feb. 2026) → 11.7% (Apr. 2026) → 13.4% (May 2026) Birr, versus the dollar:  Br134.19 (June 2025) → Br160.34 (June 2026), down 19.5% Policy interest rate:  15% Public debt, share of GDP:  50.5% (2024/25) → projected 40.8% by 2026/27 Reserve cover:  1.7 months of imports (2024/25) → projected 2.7 months by 2026/27

For much of the past two years, the disinflation story was the reform program’s clearest selling point. Price growth, which peaked above 34 percent in 2022 during the depths of Ethiopia’s civil-war-era currency crunch, fell to single digits by February. Officials and IMF staff pointed to it as evidence that the country’s painful 2024 decision to float the birr, long pegged and defended by the central bank, was finally paying off.

That narrative has since come under strain. Consumer prices climbed to 11.7 percent in April and then 13.4 percent in May, according to figures reported by local outlets tracking the Central Statistics Agency’s releases. Transport costs jumped roughly 13 percent, while food inflation has run close to 15 percent, driven by sharp increases in meat, sugar and cooking-oil prices, according to market data. Fuel price increases pushed through in April and May are expected to filter into non-food prices in the months ahead.

The NBE should stand ready to tighten further if second round inflationary pressures emerge  — IMF Executive Board statement, July 1

The fund’s language was unambiguous about where responsibility now sits. In its statement accompanying the review, the IMF said a restrictive monetary stance remains appropriate to anchor expectations and called on the central bank to keep tightening in reserve, should the war-driven price shock broaden into the kind of second-round effects that are far harder to unwind once they set in.

That call lands on a central bank still settling into new leadership. Dr. Eyob Tekalign Tolina took over as governor of the National Bank of Ethiopia in early 2026, succeeding Mamo Mihretu, the Harvard-trained technocrat who had steered the bank through the 2024 currency float and the opening rounds of the IMF program before stepping down last September. Tekalign inherits both the credit for the disinflation gains made on Mihretu’s watch and the exposure if they now unravel.

The birr’s depreciation has not helped. The currency has weakened by about 19.5 percent against the dollar over the past year, trading around Br160 to the dollar by mid-2026 compared with roughly Br134 a year earlier, according to exchange-rate tracking from currency trackers.

A weaker birr raises the local-currency cost of imported fuel, fertilizer and food, which is precisely the channel the IMF is watching for signs that the recent price spike could broaden beyond a temporary, war-related shock.

On the fiscal side, the fund’s numbers point to steady, if gradual, improvement. Government revenue is projected to rise from 9.2 percent of GDP in the 2024/25 fiscal year to 10.8 percent this year and 11.4 percent in 2026/27, reaching 12.3 percent by 2030/31. Public debt is projected to fall from 50.5 percent of GDP to 40.8 percent over the same near-term window, and foreign reserves, still thin by regional standards, are expected to climb gradually from 1.7 months of import cover toward 2.7 months by 2026/27.

Debt restructuring, the other pillar of the program, has continued to move forward. Ethiopia has signed agreements with several official bilateral creditors and reached an agreement in principle with its Eurobond holders, a milestone IMF Deputy Managing Director Nigel Clarke linked to progress made through good faith engagement with creditors, according to IMF officials. Talks with commercial lenders have also advanced, though the fund continued to urge caution on any new borrowing to avoid reopening the debt vulnerabilities the restructuring is meant to close.

The fund also renewed pressure on the central bank to unwind its role in the gold market, repeating a call for the National Bank of Ethiopia to develop a plan to exit gold operations ahead of a December 2026 deadline, as it works to rebuild reserves through more conventional channels.

It further pressed authorities to complete the bank’s recapitalization and add independent members to its board, changes the fund has framed as central to insulating monetary policy from political pressure over the longer term.

Private credit growth, effectively frozen a year ago as the Commercial Bank of Ethiopia underwent recapitalization, is now projected to expand sharply, by close to 56 percent in the current fiscal year after contracting nearly 10 percent the year before.

That swing gives the central bank another variable to manage: credit expanding quickly enough to fuel demand-side price pressure just as import costs are already pushing inflation the other way.

None of this derails the program on paper. The IMF said Ethiopia met all quantitative performance criteria and most indicative targets in the review period, and the $664 million package announced on July 1 is proof the fund still regards the reform effort as broadly credible. But the fund’s own statement made clear that credibility is conditional, tied explicitly to whether the National Bank of Ethiopia keeps monetary policy tight enough, for long enough, to stop a war-driven fuel shock from becoming an entrenched, broader inflation problem.

That is now Tekalign’s test to pass, with the world’s multilateral lender watching closely and the next program review not far behind.

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