The three-year financing package will support the implementation of the authorities’ Homegrown Economic Reform Program.
The financing package aims to help authorities reduce external imbalances, contain debt vulnerabilities, lift financial repression, increase domestic resource mobilization which will also help devote adequate resources to pro-poor spending.
WASHINGTON DC (IMF Communications Department) – On 20 December 2019, the Executive Board of the International Monetary Fund (IMF) approved three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for Ethiopia in an amount equivalent to SDR 2.1049 Billion (around 700 percent of quota or about US$2.9 billion) to help the country implement their ‘Homegrown Economic Reform Plan’ to maintain macroeconomic stability and improve living standards.
The program aims to support the authorities’ implementation of their ambitious reform agenda and catalyze concessional donor financing. The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 223.85 million (about US$308.4 million). The Executive Board also concluded the 2019 Article IV consultation with Ethiopia. A press release will be issued separately.
At the conclusion of the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, stated:
“A decade of rapid growth, underpinned by strong policies, has supported a reduction in poverty and improved living standards in Ethiopia. However, the public investment-driven growth model has reached its limits. The authorities have prepared a Homegrown Economic Reform Plan to address macroeconomic imbalances, reduce external and debt vulnerabilities, phase out financial repression, and lay the foundation for private sector-led growth.
“A financial arrangement with the Fund will support the authorities’ plan, helping to catalyze concessional financing from other development partners. The program aims to address foreign exchange shortages and external imbalances; reform state-owned enterprises (SOEs); safeguard financial stability; and strengthen domestic revenue mobilization.
“Monetary tightening and reforms will help rein in inflation, facilitate credit to the private sector, and strengthen competitiveness. Greater exchange rate flexibility, supported by tighter monetary policy, will durably address foreign exchange shortages and narrow the spread between the official and parallel market rates. Further efforts are needed to modernize the monetary policy framework and deepen financial inclusion.
“Fiscal consolidation and reforms aim to reduce debt vulnerabilities, increase revenue, and strengthen expenditure efficiency while protecting social and development spending. Improving the financial positions of SOEs and strengthening their governance and oversight will also be critical to ensuring debt and financial stability.
“With strong ownership and full implementation of reforms, the authorities’ economic plan should eventually improve macroeconomic outcomes and lower external vulnerabilities. High priority is placed on removing constraints to private investment and improving the business climate, setting the stage for an acceleration in private sector-led growth.”
Recent economic developments in Ethiopia
Ethiopia has sustained high economic growth over the last decade. Substantial progress on reducing poverty and improving social indicators has also been noteworthy. In 2018/19, real gross domestic product (GDP) is estimated to have grown by 9 percent, driven by manufacturing and services. However, the performance of goods exports remained weak and foreign exchange shortages persisted. Policies appropriately targeted at containing public investment and debt contributed to a further narrowing of the current account deficit to 4.5 percent of GDP and a reduction in public and publicly-guaranteed debt to 57 percent of GDP. Inflation remained elevated in double digits, largely due to higher food prices, though non-food inflation has also been trending upward. While revenues came in below target, cuts in expenditure contained the fiscal deficit to 2.5 percent of GDP, below budget.
Source: IMF Communications Department
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