## Press Release: IMF Approves New Three-Year ESAF Loan for Ethiopia _IMF News, October 11, 1996_ ## Source details **Canonical URL:** [Press Release: IMF Approves New Three-Year ESAF Loan for Ethiopia](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9651) ## Other formats - [Markdown version](/en/news/articles/2015/09/14/01/49/pr9651/index.md) - [Structured JSON version](/en/news/articles/2015/09/14/01/49/pr9651/index.json) - [Bundle manifest](/en/news/articles/2015/09/14/01/49/pr9651/bundle-manifest.json) ## Bibliographic details - Published: October 11, 1996 --- ### Loan approval and financing details - The IMF approved a new three-year loan under the enhanced structural adjustment facility (ESAF) for Ethiopia totaling the equivalent of SDR 88.5 million (about US$127 million). - The first annual ESAF loan is equivalent to SDR 29.5 million (about US$42 million) and will be disbursed in two equal installments, the first of which is available immediately. - ESAF lending terms: interest rate of 0.5 percent; repayable over 10 years with a 5 1/2-year grace period. ### Recent economic performance (background) - Ethiopia implemented an IMF-supported program in mid-1992 under the structural adjustment facility (SAF) to stabilize the economy and transition to a market-based system. - 1995/96 outcomes cited: - Real GDP growth: 7.7 percent. - Inflation (period average): 1.2 percent. - Foreign exchange position: equivalent of eight months of imports. - External current account deficit widened to 9.6 percent of GDP from 5.3 percent in 1994/95, due partly to lower world market coffee prices and strong import growth. ### Medium-term strategy and 1996/97 program objectives - Main macroeconomic objectives for 1996-99 supported by the ESAF loan: - Achieve 6 percent growth in real GDP. - Limit the rate of inflation to 2 percent. - Contain the external current account deficit at about 9.2 percent of GDP. - Maintain gross official foreign reserves at the equivalent of 7.5 months of imports. - 1996/97 program targets: - Real GDP growth: 6 percent. - Inflation rate: 1.2 percent. - External current account deficit: about 10.5 percent of GDP. - Gross official foreign reserves: equivalent of eight months of imports. - Policy stance and measures: - Sustain growth with price stability through increased domestic savings and investment and further liberalization of exchange and trade systems. - Rigorous fiscal policy: broaden tax base, strengthen tax administration, restrain expenditures, phase out fertilizer subsidies, compress the wage bill. - Tight monetary targets to be supported by a move toward market-determined interest rates, including more aggressive government sales of treasury bills to the nonbank public. - External measures: initial reduction in the export proceeds surrender requirement; introduction of foreign exchange bureaus within the banking system; near- and medium-term moves to lower tariff rates. ### Structural reform policies - Measures underway or planned: - Easing restrictions on foreign investment. - Adopting more realistic prices for commodities still subject to controls. - Increasing market-based allocation of land. - Accelerating privatization of public enterprises; remaining state enterprises to operate on a strictly commercial basis. - Revisions of the investment code to permit private domestic investment in the telephone system and allow joint ventures between foreign and domestic partners in selected activities (large-scale engineering and metallurgical industries, pharmaceutical and fertilizer production). - Accelerating public auctioning of urban land leases to support private investment. - Agricultural sector reforms: overhaul of extension and research services, liberalization of input marketing, privatization of state farms. ### Addressing social needs - Public investment priorities to emphasize roads, energy, water supply, primary education, and basic health care. - Budget shares for primary education and basic health services to be increased; health care financing to be improved. - Measures to enhance the status of women: revise laws and regulations to guarantee equal access to resources, property, and business activities. - Population policy: promote education with a view to reducing the fertility rate. ### Challenges and external financing - Ethiopia will require strong adjustment efforts in coming years. - To achieve debt sustainability, Ethiopia will need to rely on exceptional financing and foreign direct investment. - The program aims to maintain gross official foreign reserves at a level to provide a cushion for servicing external debt and to withstand unforeseen terms of trade shocks or droughts. ### IMF membership, quota, and outstanding use of credit - Ethiopia joined the IMF on December 27, 1945. - Ethiopia's quota is SDR 98.3 million (about US$141 million). - Ethiopia's outstanding use of IMF credit currently totals SDR 49.42 million (about US$71 million). ### Key economic indicators (selected) - Real GDP (percent change): 1994/95 = 4.9; 1995/96* = 7.7; 1996/97** = 6.0; 1997/98** = 6.0; 1998/99** = 6.0. - Consumer prices (period average): 1994/95 = 13.4; 1995/96* = 1.2; 1996/97** = 1.2; 1997/98** = 3.0; 1998/99** = 2.2. - Overall fiscal balance, excluding grants (percent of GDP, deficit-): 1994/95 = -8.8; 1995/96* = -8.1; 1996/97** = -7.7; 1997/98** = -6.7; 1998/99** = -5.6. - External current account balance, excluding grants (percent of GDP, deficit): 1994/95 = -5.3; 1995/96* = -9.6; 1996/97** = -10.5; 1997/98** = -9.1; 1998/99** = -8.2. - International reserves (months of imports): 1994/95 = 6.8; 1995/96* = 8.7; 1996/97** = 7.9; 1997/98** = 7.6; 1998/99** = 7.0. - Sources for indicators: Ethiopian authorities; and IMF staff estimates. - * Estimate. - ** Program. --- _Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9651_