International Monetary Fund (IMF) and Ethiopia are undertaking negotiations on preconditions over a loan and reforms package, a senior IMF official said.

Ethiopia may need to devalue its currency, which is trading on the black market about 50% weaker than the official rate against the U.S. dollar, to secure the support of the IMF. The fund has not confirmed this is a condition of funding but usually favours flexible, market-determined exchange rates, Reuters reported.

The country is still gripping with high inflation and chronic foreign currency shortages, in December became the third African state to default on its debt after long.

“Negotiations are ongoing. There are still differences. I'm cautiously optimistic. Discussions take the time they take.” IMF Mission Chief for Ethiopia, Alvaro Piris Chavarri told reporters during the IMF and World Bank Spring Meetings in Washington, while refraining from details of the differences that needs to be fixed.  

The report mentioned that the country hasn't received any IMF funds since 2020 and its last lending arrangement with the fund went off track in 2021. Ethiopia's financing needs have been "broadly" agreed on, Piris Chavarri said.

Ethiopia is in talks with the World Bank about $3.5 billion in support and plans to find another $3.5 billion in savings through a debt restructuring, a Western diplomat familiar with the situation told Reuters.

Finance Minister Ahmed Shide and the Governor of the National Bank of Ethiopia, Mamo Mihiretu were among officials that discussed with senior IMF and World Bank executives in Washington about the ongoing reforms including liberalization and addressing foreign exchange distortions, said the Ministry of Finance of Ethiopia in a statement posted on its official Facebook page last Friday.

The statement noted that the meetings agreed on a way forward on how the IMF and WB can jointly support the country's ambitious economic program.

“It was optimistic about the impact of a future deal, but that there were "several subsequent steps ... (and) the details of these next phases are being finalized," a World Bank spokesperson said on Thursday in an email sent to the Reuters.

On Friday, Ethiopia officially announced the adoption of new directive that permits involvement of foreign companies in its most restricted businesses such as import, export, wholesale and retail trades. In a presser, the Ethiopian Investment Commission expressed that the new legal framework is designed to attract global investments to increase production and government revenues.