Statement by IMF Deputy Managing Director Takatoshi Kato at the Conclusion of a Visit to Ethiopia

Press Release No. 07/42
March 9, 2007

Mr. Takatoshi Kato, Deputy Managing Director of the International Monetary Fund (IMF), made the following statement today in Addis Ababa:

"It has been a great pleasure to visit Ethiopia. As you may know, the main purpose of my visit has been to participate in the concluding discussions for the IMF's annual Article IV consultation. During my visit, I had the opportunity to meet with Prime Minister Meles Zenawi, as well as Finance and Economic Development Minister Sufian Ahmed, National Bank of Ethiopia Governor Teklewold Atnafu, and other senior officials. I also had discussions with the local representatives of the donor community. And I was fortunate to be able to see the fine work being done at the Lideta Salam school for underprivileged children. Let me take this opportunity to thank the authorities for their gracious hospitality and all our counterparts for the very frank and cordial discussions.

"The Ethiopian economy has made good progress in recent years. After a significant drought-related contraction in 2002/03, the economy rebounded with an annual average growth rate of nearly 11 percent during 2003/04 - 2005/06—significantly above the average of less than 6 percent realized in sub-Saharan African countries. This relatively strong growth has meant that real per capita income has increased at about 7 percent per annum over the past three years, the fastest rate in Ethiopia's recent history.

"In my meetings with the authorities, I expressed the Fund's support for the government's overall strategy to strengthen the foundations for growth—with an increasing role for the private sector—while preserving macroeconomic stability. This broad strategy includes maintaining a sustainable debt position, while scaling up public sector investment in the key areas of infrastructure, health and education, boosting overall economic activity through commercialization of agriculture, and fostering the non-farm private sector.

"It was clear from our discussions that there are important challenges ahead for Ethiopia to sustain rapid growth, so that it can significantly reduce poverty, and make progress towards the Millennium Development Goals and the targets of the government's Program for Accelerated and Sustainable Development to End Poverty (PASDEP). The recent rebound in growth has been accompanied by some inflationary pressures, a widening of the external current account deficit and a decline in gross official international reserves. We agreed that the impact of inflation on the poor is very heavy and efforts should be made to bring it down to more tolerable levels. Against his background, and as I emphasized in my meeting with the authorities, a critical challenge for Ethiopia is to strike a judicious balance between demand-dampening measures and growth-enhancing structural reforms of the economy, that would in particular raise agricultural productivity and boost private sector growth. Further efforts are also needed to strengthen public financial management and financial sector reform.

"The authorities also reiterated their policy of relying on grants and concessional loans to finance the development effort. They recognized the risks of reverting to an unsustainable debt burden, and have stressed their commitment to wisely use the fiscal space provided through the recent debt relief under the Highly Indebted Poor Country and the Multilateral Debt Relief Initiatives. This effort will be guided by the IMF/World Bank Debt Sustainability Analysis framework.

"In closing, let me say that I am encouraged by Ethiopia's progress and the authorities' commitment to pursue sound macroeconomic policies and structural reforms. I am leaving with a strong sense of partnership between Ethiopia and the IMF. And I am grateful for the warm welcome and hospitality extended to me and the mission team."



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