IMF Executive Board Approves US$2.9 Billion ECF and EFF Arrangements for Ethiopia

IMF News, December 20, 2019

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Executive Board 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).
The Executive Board’s decision enables an immediate disbursement equivalent to SDR 223.85 million (about US$308.4 million).
The financing package is intended to support implementation of the authorities’ Homegrown Economic Reform Program (HERP).

Support implementation of the Homegrown Economic Reform Plan to maintain macroeconomic stability and improve living standards.
Aim to reduce external imbalances and contain debt vulnerabilities.
Phase out financial repression and lay the foundation for private sector-led growth.
Catalyze concessional donor financing to complement the Fund-supported program.

Address foreign exchange shortages and transition to a more flexible exchange rate regime; greater exchange rate flexibility over time is intended to eliminate the gap between the official and parallel market and boost competitiveness.
Reform state-owned enterprises (SOEs): strengthen oversight and management, maintain strict control of SOE borrowing, and publish consolidated financial performance for SOEs based on financial statements to increase transparency and accountability.
Boost domestic revenue mobilization and increase expenditure efficiency: revenue reforms on policy and administration to increase the tax to GDP ratio; strengthen public financial management and increase the efficiency of public investment to meet infrastructure and social spending needs without undermining debt sustainability.
Reform the financial sector and modernize the monetary policy framework: reduce financial repression, develop the financial sector to increase private sector access to credit, phase out central bank direct financing of the budget, and develop short-term market-based instruments to support consistent achievement of inflation objectives.
Reinforce the supervisory framework and financial safety nets: strengthen regulatory and supervisory standards and approve/implement regulations for deposit insurance.

Monetary tightening and reforms to rein in inflation, facilitate credit to the private sector, and strengthen competitiveness.
Rationalization of import-heavy public investment projects combined with reforms to boost FDI and exports to address external sector vulnerabilities.
Fiscal consolidation and reforms to reduce debt vulnerabilities, increase revenue, and strengthen expenditure efficiency while protecting social and development spending.
Improve financial positions, governance, and oversight of SOEs to ensure debt and financial stability.
High priority on removing constraints to private investment and improving the business climate to set the stage for an acceleration in private sector-led growth.

Real gross domestic product (GDP) in 2018/19 is estimated to have grown by 9 percent, driven by manufacturing and services.
Current account deficit narrowed to 4.5 percent of GDP.
Public and publicly-guaranteed debt fell to 57 percent of GDP (from 59.5 percent).
Inflation remained elevated in double digits, largely due to higher food prices; non-food inflation has also been trending upward.
Fiscal developments: revenues came in below target, but expenditure cuts contained the fiscal deficit to 2.5 percent of GDP, below budget.

Press Release No. 19/486, December 20, 2019 — International Monetary Fund.