Press Release: IMF Completes Fifth Review Under Ethiopia's PRGF Arrangement and Approves US$15 Million Disbursement
March 1, 2004
The Executive Board of the International Monetary Fund (IMF) has completed the fifth review of Ethiopia's performance under an SDR 100.28 million (about US$148 million) Poverty Reduction and Growth Facility (PRGF) Arrangement (see Press Release No. 03/145). The completion of the review enables the release to Ethiopia of the equivalent of SDR 10.43 million (about US$15 million), which would bring the total amount drawn under the arrangement to the equivalent of SDR 89.85 million (about US$133 million).
The Board also reviewed the first annual progress report of the Poverty Reduction Strategy Paper (PRSP) and determined that it continues to provide a sound basis for Fund concessional financial assistance.
The PRGF is the IMF's concessional facility for qualifying low-income countries. The purpose of the PRGF is to support programs to strengthen substantially and in a sustainable manner a country's balance of payments position and to foster durable growth, leading to higher living standards and a reduction in poverty. PRGF-supported programs are 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). PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period.
After the Executive Board's discussion on Ethiopia, Takatoshi Kato, Deputy Managing Director and Acting Chairman, stated:
"Ethiopia's performance under the third annual PRGF-supported program has so far been commendable, despite the adverse impact on the economy of the recent drought. Growth is now recovering, food supply conditions are returning to a more normal level, and consumer price inflation is coming down.
"Ethiopia is making good progress in implementing a comprehensive and participatory poverty reduction strategy. The Executive Board looks forward to early consideration of Ethiopia's completion point under the enhanced HIPC Initiative, which will help ensure continued strong support by the international community to assist the authorities with their reform efforts.
"All performance criteria and structural benchmarks for the completion of the fifth review under the arrangement have been met. The authorities have adopted and commenced implementation of a restructuring plan for the Commercial Bank of Ethiopia (CBE), and good progress has also been made in strengthening public expenditure management. A directive has been implemented to ensure full provisioning by commercial banks for non-performing loans, in line with international best practices. Interest and exchange rates remain appropriately flexible and market-determined, with monetary policy aimed at further lowering inflation.
"Fiscal policy under the program will continue to focus on enhancing revenues, strengthening public expenditure management, and reorienting spending programs towards poverty-related activities. For 2003/04, the overall fiscal deficit (including grants) is projected to be reduced to some 7 percent of GDP. Going forward, the authorities are encouraged to continue to carefully prioritize their expenditure plans.
"Financial sector reform remains an important priority of the program. The restructuring plan for the Commercial Bank of Ethiopia is being implemented to restore its profitability and sound management, and measures are being taken to strengthen the organizational structure and finances of the National Bank of Ethiopia.
"Ethiopia has developed a strategy to address food security through a combination of increased agricultural productivity, voluntary resettlement, and safety nets. Further elaboration of the strategy will help to ensure that its costs are incorporated within the annual budgeting process, and that the strategy is integrated into a broader economic policy framework consistent with macroeconomic stability," Mr. Kato said.