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Ethiopia steps up health spending with IMF help

The IMF has approved US$411M in emergency assistance for Ethiopia to help fight the coronavirus pandemic in the east African country. It also approved Ethiopia’s request for a suspension of debt service payments of about US$12M to the IMF under the IMF’s Catastrophe Containment and Relief Trust for poor countries.

In an interview with IMF Country Focus, Fikadu Digafe Huriso, Vice Governor and Chief Economist of the National Bank of Ethiopia describes the impact of COVID-19 on his country, and the measures which Ethiopia is taking to combat the pandemic.

What has been the impact of COVID-19 on Ethiopia? And which sectors have suffered the most?

The most direct economic impact, so far, has been on the service sector, particularly transport, travel, and hospitality services. The pandemic has severely affected passenger transport (both air and land), which, in turn, has shaken the hospitality industry resulting in closures of many big hotels.

The Jobs Creation Commission has estimated that close to 1.4 million workers will be affected by the pandemic, particularly in the service and manufacturing sectors. Some industrial parks have already laid off workers due to a slump in global demand.

As more and more people continue to become infected, we expect the impact on health resources and on the fiscal sector to grow. In addition, a number of studies suggest that disruptions in supply chains will affect the most vulnerable, especially those engaged in informal sectors, as their earnings and access to food will be severely affected.

What measures have the authorities taken so far?

On April 8, 2020, the federal government of Ethiopia declared a state of emergency, and several measures related to social distancing and city transport came into effect. On the economic front, a number of fiscal, monetary, and sectoral measures were introduced:

Fiscal Measures

• A Birr 5B (around US$150M) preliminary stimulus package

• The removal of import taxes on COVID-19 related items
• Faster value-added tax refunds for businesses

Monetary Measures

• Birr 21B (around US$630M) support for banks to address the expected liquidity shortage from expected lower deposits and loan collection, and to make available working capital for sectors impacted by the COVID-19 pandemic

• Priority access to foreign exchange importers and producers of COVID-19-related goods

• The raising of mobile money transfer limits

• The relaxing of the Central Bank’s non-performing loan directive to allow banks to reschedule loan payments for highly affected sectors like horticulture, hotels, and tourism among others

Sectoral Measures

• The removal of minimum export flower prices

• Stronger enforcement measures against price gouging

Ethiopia will have access to around US$411M in emergency funding, how will this be used?

The emergency funds will support two broad areas. First, it will support the import of much-needed essential health supplies such as personal protective equipment (sanitizers, gloves, masks etc) and intensive care equipment like ventilators. The funding will also support communication on health issues as combating COVID-19 will require a lot of advocacy work to ensure that people stick to prevention recommendations.

Second, the resources will be used to ensure an adequate supply of essential goods such as food items (like wheat and edible oil) to aid the vulnerable. Although it will be challenging to implement large-scale social intervention to combat job losses and aid the informal sector, it is important to ensure that those in extreme poverty have access to basic items to survive.

The emergency financing will be useful to offset foreign exchange losses and enable the government to finance the importation of basic commodities including food and fuel. The emergency financing will also help ease pressure on balance of payments that could arise from unplanned COVID-19-related imports.

How will this financing be used to alleviate the impact of the pandemic?

After the pandemic has subsided, there will be a need to revive severely-affected sectors. This can be achieved by providing low-cost lending and rescheduling loans to various enterprises whose incomes have been severely affected, enabling them to revive their businesses.

It will be important to encourage spending by ensuring the supply of adequate liquidity to the financial system. This measure has to be supplemented by adequate foreign exchange resources to revitalize both imports and exports.

In addition, some fiscal incentives, such as tax relief, can be targeted to firms to strengthen their balance sheet, which will, in turn, induce them to hire. This will help ease the impact on unemployment caused by a slowdown in businesses, especially in the services and manufacturing sectors.

The funds can also be used to scale up existing rural and urban safety net programs, and to avoid an increase in the number of people sliding into absolute poverty.

Source: EIN Newsdesk

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