IMF Staff Visit Discusses Reform Plans and Economic Developments in Ethiopia

IMF News, June 21, 2022

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Technical IMF staff visit to Ethiopia during June 13-17, led by Sonali Jain-Chandra, to discuss the authorities’ reform plans and economic developments and provide input for a potential future mission to negotiate a Fund program.
End-of-Mission press release; views are those of IMF staff and do not necessarily represent the IMF Executive Board. This mission will not result in a Board discussion.

Multiple shocks over the past two and a half years: the COVID-19 pandemic, drought, conflict in the north of Ethiopia, and the war in Ukraine.
These shocks have created significant macroeconomic and humanitarian challenges.

Growth is projected to have fallen to 3.8 percent for FY2021/22, attributed to:
- conflict in Northern Ethiopia,
- lower agricultural production,
- a sharp fall in donor financing,
- intensifying Foreign Exchange (FX) shortages,
- drought,
- spillovers from the war in Ukraine.
Inflation has been high and rising, driven by rapidly increasing food prices and supply-side constraints.

Exports and Foreign Direct Investment have held up well despite the difficult environment.
Rising global commodity prices for fuel, food and fertilizer, driven in part by the war in Ukraine, will increase imports and widen the current account deficit in FY2021/22.
Lower external loan disbursements have weakened the external sector and put downward pressure on reserves, which remain inadequate.
Delivery of a debt treatment for Ethiopia under the G20 Common Framework, as part of a package supported by an IMF program, is essential to reduce debt vulnerabilities.
The Fund will continue to cooperate closely with the Creditor Committee to provide technical support to the Common Framework process and is working on steps towards commencing discussions on an IMF program as soon as conditions allow.

The budget deficit is projected to widen following approval of a supplementary budget that included increased military and humanitarian spending and amid sharply lower tax revenues due to the conflict.
Reform of the treasury bill market has facilitated substantial increases in issuance volumes.
Lack of external financing has required central bank advances to finance the larger deficit.
Authorities remain committed to:
- improving the efficiency of public investment,
- strengthening oversight and reforms of State-Owned Enterprises,
- containing public sector borrowing,

consistent with meeting development objectives and strengthening debt sustainability.

Progress on implementing roadmaps on foreign exchange (FX) reforms and modernization of monetary policy should help address FX shortages and reduce inflation.
Revenue reforms consistent with ambitious revenue projections in the government’s 10-year plan will support sustainable financing of development needs.
Continued progress on reforms to shift from public to private sector-led growth as laid out in the Homegrown Economic Reform Plan will contribute to high and sustainable growth over the long term.
The IMF welcomes recent steps to build peace and address the humanitarian situation and hopes for continued improvements.

During the mission, the IMF team met with:
- Minister of Finance, Ahmed Shide,
- Governor of the National Bank of Ethiopia, Dr. Yinager Dessie,
- State Minister of Finance, Dr. Eyob Tekalign,
- Vice Governor Fikadu Huriso,
- other government officials, representatives of the private sector including banks, and the development partner community.
The team extended appreciation to the authorities for their hospitality, cooperation and productive discussions.

IMF Communications Department — MEDIA RELATIONS, PRESS OFFICER: Nicolas Mombrial, Phone: +1 202 623-7100 Email: MEDIA@IMF.org