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Home Development

IMF discusses reforms and economic developments in Ethiopia

Emmanuel Chilamphuma by Emmanuel Chilamphuma
June 24, 2022
in Africa, Development, Ethiopia
Reading Time: 3 mins read
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The authorities aim to address macroeconomic imbalances and remain committed to structural reforms to support a transition to private sector-led growth over the medium term

Multiple shocks hitting the Ethiopian economy have dampened growth, further increased inflation and created fiscal and external pressures; The authorities aim to address macroeconomic imbalances and remain committed to structural reforms to support a transition to private sector-led growth over the medium term; Delivery of a debt treatment for Ethiopia under the G20 Common Framework is essential to reduce debt vulnerabilities. The Fund will continue to cooperate closely with the Creditor Committee to provide technical support to the Common Framework process and is working on steps towards commencing discussions on an IMF program as soon as conditions allow.

Also read: Ethiopia secures over $1B from 11-month coffee export

A staff team from the International Monetary Fund (IMF), led by Sonali Jain-Chandra, visited Ethiopia for a technical staff visit with the Ethiopian authorities during June 13-17. The purpose of the staff visit was to discuss the authorities’ reform plans and economic developments, which could provide important input for a future mission to negotiate a potential new Fund program.

At the conclusion of the mission, Ms. Jain-Chandra issued the following statement:

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

Delivery of a debt treatment for Ethiopia under the G20 Common Framework, as part of a package supported by an IMF program, is essential to reduce debt vulnerabilities

“Delivery of a debt treatment for Ethiopia under the G20 Common Framework, as part of a package supported by an IMF program, 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 cooperate closely with the Creditor Committee to provide technical support to the Common Framework process and is working on steps towards commencing discussions on an IMF program as soon as conditions allow.

“Growth is projected to have fallen to 3.8 percent for FY2021/22 resulting from the conflict in Northern Ethiopia, lower agricultural production, a sharp fall in donor financing and intensifying Foreign Exchange (FX) shortages, drought, and spillovers from the war in Ukraine. Inflation has been high and rising, including due to rapidly increasing food prices and supply-side constraints.

Also read: Ethiopia teams up with Microsoft to digitise higher education

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

“The budget deficit is projected to widen, following approval of a supplementary budget which included increased military and humanitarian spending, and with sharply lower tax revenues amid the conflict. While the reform of the treasury bill market has facilitated substantial increases in the volume of issuances, the lack of external financing has required central bank advances to finance the larger deficit. The authorities remain committed to improving the efficiency of public investment, oversight and reforms of State-Owned Enterprises and containing public sector borrowing, consistent with their goal of meeting development objectives while strengthening debt sustainability.

“Progress on implementing roadmaps on foreign exchange (FX) reforms and modernization of monetary policy should help address FX shortages and reduce inflation. Revenue reforms consistent with ambitious revenue projections in the government’s 10-year plan will support sustainable financing of development needs. Continued progress on reforms to shift from public to private sector-led growth as laid out in the Homegrown Economic Reform Plan will contribute to high and sustainable growth over the long term. We welcome recent steps to build peace and address the humanitarian situation and hope for continued 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, State Minister of Finance, Dr. Eyob Tekalign; Vice Governor Fikadu Huriso, other government officials, representatives of the private sector, including banks, and the development partner community. The team extends its appreciation to the authorities for their hospitality, cooperation and productive discussions.”

Related

Source: IMF
Tags: agricultural productiondevelopmentEthiopiaEyob TekalignFikadu Hurisoforeign exchangeFXIMF discusses reforms and economic developments in EthiopiaInternational Monetary FundInternational Monetary Fund (IMF)Jain-ChandramacroeconomicNational Bank of EthiopiaPrivate SectorSonali Jain-ChandraYinager Dessieэфиопияأثيوبياエチオピア埃塞俄比亚
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Emmanuel Chilamphuma

Emmanuel Chilamphuma

Emmanuel is the founder and principal of Sarko Partners, a UK-based business development agency bridging opportunities between the UK and key African markets. He has developed his career as a Senior Africa-focused Analyst having held positions in different private investment groups operating in Subsaharan Africa. Emmanuel also holds a position at FurtherMarkets where he manages a number of Business Development initiatives connecting Southern Africa to foreign markets, particularly the UK, the US, and the European Union. Emmanuel was born in Zimbabwe to a Malawian family and grew up in London. He holds an International Economic Law degree from the University of London.

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