News Brief: IMF Completes Ethiopia's Review Under the PRGF and Approves US$22 Million Disbursement
August 2, 2001
The Executive Board of the International Monetary Fund (IMF) today completed the first review of Ethiopia's program provided for in its arrangement under the Poverty Reduction and Growth Facility (PRGF)1. As a result, Ethiopia will be able to draw up to SDR 17.38 million (about US$22 million) under the arrangement immediately.
Ethiopia's three-year arrangement was approved on March 22, 2001 (see Press Release 01/11) for SDR 86.91 million (about US$110 million). So far, Ethiopia has drawn SDR 17.38 million (about US$22 million).
After the Executive Board's discussion on Ethiopia, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, made the following statement:
"Ethiopia has performed well under the PRGF-supported program in the context of welcome progress toward peace with Eritrea. All applicable performance criteria and benchmarks have been observed. Real GDP growth reached 7.5 percent in 2000/01, while inflation turned negative, reflecting a bumper cereal crop and large inflows of food aid. Fiscal performance was broadly consistent with the program and several tax policy measures were implemented. Defense outlays fell by more than budgeted, and social spending increased. In the monetary and exchange areas, greater use was made of indirect monetary policy instruments, and there was a move toward market determination of interest and exchange rates.
"Policies in 2001/02 are geared to sustaining economic performance. Real GDP is projected to grow by 7 percent. The overall fiscal deficit is to be limited to some 8 percent of GDP. Further progress is planned in tax administration reform and in preparation for the introduction of a value-added tax. Defense spending is to be cut further, while poverty-targeted outlays will increase. Foreign concessional assistance will continue to be critical in financing the fiscal and current external deficits.
"Planned structural reforms include strengthening the financial sector and its competitiveness, pursuing privatization, and further improving governance" Mr. Sugisaki said.
1 On November 22, 1999, the IMF's facility for low income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. In the case of Ethiopia, progress is being made in the preparation of a full PRSP, which the authorities intend to complete by March 2002. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½ year grace period on principal payments.