IMF deal lifts Ethiopia bonds as currency slides to record low

Ethiopia’s dollar-denominated sovereign bonds jumped on Thursday to the highest since January 2018 while the currency eased to a fresh record low after Addis Ababa reached a staff-level agreement with the International Monetary Fund (IMF).

The bond maturing in 2024 gained as much as 1.1 cents to 106.34 cents in the dollar, according to Tradeweb data. The birr currency extended its slide to 31.5088 to the dollar, having depreciated sharply in the past four weeks.

The fund and the government reached a $2.9 billion preliminary agreement on Wednesday for a three-year financing package to support Ethiopia’s economic reforms.

In its statement, the IMF outlined five pillars to its program with a “transition to a more flexible exchange rate regime” topping the list. Other items were more oversight of state enterprises, domestic revenue mobilization, financial sector and monetary policy reform, and improving supervision.

Africa’s biggest coffee exporter has operated a carefully managed floating exchange rate regime since 1992.

It last devalued the currency by 15% in October 2017.

The IMF agreement marked a big shift for Ethiopia, said Charles Robertson at Renaissance Capital, who calculates the currency is over-valued by 20-25%.

On the black market, the birr traded at 39 to the dollar.

“We assumed an IMF deal was off the agenda,” Robertson wrote to clients, adding any currency adjustment would also aid government privatization plans in the telecom and airline sectors and help attract investors nervous about being able to repatriate funds.

“This immediately matters to bidders for telecom licenses in Ethiopia, holders of the illiquid single sovereign Eurobond ... and private equity groups who’ve already invested in the continent’s second largest country by population, attracted by two decades of very high growth.”

A number of countries including Angola have recently let their currency weaken to help their economic adjustments. (Reporting by Karin Strohecker; Additional reporting by Giulia Paravicini in Addis Ababa; Editing by Jon Boyle and Andrew Cawthorne)