IMF staff visit discusses reform plans and economic developments in Ethiopia

IMF staff visit discusses reform plans and economic developments in Ethiopia

June 21, 2022

Press releases at the conclusion of the mission include statements from IMF staff teams that provide preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily reflect the views of the IMF’s Executive Board. This mission will not result in a board discussion.

• Several shocks that have hit the Ethiopian economy have dampened growth, further increased inflation and created fiscal and external pressures.
• The authorities are committed to addressing macroeconomic imbalances and remain committed to structural reforms to support the transition to private sector-led growth over the medium term.
• Providing Ethiopia with debt treatment under the G20 Joint Framework is essential to reduce debt vulnerabilities. The Fund will continue to work closely with the Creditors’ Committee to provide technical support for the Common Framework process and is working on steps to begin discussions of an IMF program when conditions permit.

Washington, D.C.:
An International Monetary Fund (IMF) staff team led by Sonali Jain-Chandra visited Ethiopia June 13-17 for a staff technical visit to the Ethiopian authorities. The purpose of the staff visit was to discuss the authorities’ reform plans and economic developments, which could make an important contribution to a future negotiation mission on a possible new fund program.

At the end of the mission, Ms. Jain-Chandra made the following statement:

“The Ethiopian economy has faced multiple shocks over the past two and a half years, including the COVID-19 pandemic, drought, the conflict in northern Ethiopia and the war in Ukraine. This has created significant macroeconomic and humanitarian challenges.

“Providing debt treatment to Ethiopia under the G20 Joint Framework as part of an IMF program-backed package is essential to reduce debt vulnerabilities. The authorities reiterated their interest in an IMF program to support their reform agenda. The Fund will continue to work closely with the Creditors’ Committee to provide technical support for the Common Framework process and is working on steps to begin discussions of an IMF program when conditions permit.

“Growth is expected to have slowed to 3.8 percent for fiscal 2021/22, driven by the conflict in northern Ethiopia, lower agricultural production, a sharp drop in donor funding and worsening foreign exchange shortages, drought and side effects of the war in Ukraine . Inflation was high and rising, also due to rapidly rising food prices and supply-side constraints.

“Exports and foreign direct investments have held up well despite the difficult economic environment. However, rising global commodity prices for fuel, food and fertilizer, caused in part by the war in Ukraine, will increase imports and widen the current account deficit in FY2021/22. This, combined with lower external credit disbursements, has weakened the external sector and put pressure on reserves, which remain insufficient.

“The budget deficit is expected to widen after a supplementary budget was approved that included increased military and humanitarian spending, and with significantly lower tax revenues amid the conflict. While the reform of the Treasury bill market has enabled a significant increase in issuance, the lack of external funding has required advances from central banks to finance the larger deficit. The authorities remain committed to improving the efficiency of public investment, oversight and state-owned enterprise reforms, and to curbing public sector borrowing, in line with their goal of achieving the development goals while strengthening debt sustainability.

“Progress in implementing foreign exchange (FX) reform roadmaps and modernizing monetary policy should help address foreign exchange constraints and reduce inflation. Revenue reforms consistent with the ambitious revenue forecasts in the government’s 10-year plan will support sustainable financing of development needs. Continued progress on reforms to shift growth from the public to the private sector, as outlined in the Homegrown Economic Reform Plan, will contribute to high and sustainable growth over the long term. We welcome the recent steps taken to build peace and address the humanitarian situation, and look forward to further improvements in these areas.

“During the mission, the IMF team met with Minister of Finance Ahmed Shide, Governor of the National Bank of Ethiopia, Dr. Yinager Dessie, Minister of State for Finance, Dr. Eyob Tekalign; Deputy Governor Fikadu Huriso, other government officials, representatives of the private sector, including banks, and the development partner community. The team thanks the authorities for their hospitality, cooperation and productive discussions.”