The Federal Democratic Republic of Ethiopia: Fifth Review Under the Extended Credit Facility Arrangement, Request for Rephasing of Access, Modification of Indicative Targets, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia

This paper highlights Federal Democratic Republic of Ethiopia’s Fifth Review under the Extended Credit Facility Arrangement, Request for Rephasing of Access, Modification of Indicative Targets, and Financing Assurances Review. Ethiopia’s Homegrown Economic Reform agenda, supported by a four-year Extended Credit Facility approved in July 2024, has delivered stronger-than-expected macroeconomic outcomes by reducing imbalances, improving debt sustainability, and fostering private sector-led growth. However, the Middle East conflict has emerged as a significant external shock, creating near-term financing pressures and increasing inflationary risks. Policy discussions focused on mitigating the impact of higher fuel and fertilizer prices through appropriate fuel price adjustments, protecting vulnerable households, implementing a prudent FY2026/27 budget, advancing foreign exchange market reforms, and maintaining a monetary policy stance consistent with price stability. Program performance has remained strong, with all end-December quantitative performance criteria and most indicative targets achieved, while key structural reforms are progressing as planned. Looking ahead, continued reform implementation is expected to sustain robust growth and declining inflation. Nevertheless, prolonged commodity price shocks, reform delays, political or social pressures, and security risks could weaken fiscal and external balances and increase financing needs.