A vendor counts Ethiopian birr currency banknotes in the Merkato area of Addis Ababa, Ethiopia. (Photo: Amanuel Sileshi / Bloomberg via Getty Images) 
The decision will allow the immediate disbursement of about $1 billion, the fund said in an statement Monday.
The funds are part of about $10.7 billion that the Horn of Africa nation is expecting from creditors that includes loans, grants and debt re-profiling.
“This is a landmark moment for Ethiopia,” IMF Managing Director Kristalina Georgieva said in the statement.
Ethiopia has about $28.4 billion of external debt and has been seeking to restructure its loans since 2021. Progress on the overhaul was delayed by a two-year civil war in the nation’s northern Tigray region that ended in November 2022. The country defaulted on a eurobond payment in December.
Ethiopia’s central bank paved the way for a deal with the IMF when it announced on Monday that it would allow the nation’s currency — the birr — to trade freely. The step echoed a similar measure by Egypt in March, when it allowed its currency to weaken almost 40%, enabling an $8 billion bailout from the IMF.
Earlier this month, the country’s official creditors committee granted Ethiopia financing assurances to help fast-track approval of a new IMF loan.
Ethiopia has introduced a series of economic reforms under Prime Minister Abiy Ahmed’s administration, including allowing foreign investment into domestic banks and establishing a capital market.
The country has previously had eight other IMF arrangements, according to the lender’s website.