{
  "title": "IMF Survey: For Sustained Growth, Ethiopia Needs to Promote Remonetization",
  "publication": "IMF News, June 22, 2010",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/socar062210a",
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  "summary": "Ethiopia has made progress in restoring economic stability in 2009, while maintaining strong growth, the IMF says in its regular review of the east African country’s economy. Ethiopia’s top short-term priority is to arrest a demonetization trend and promote financial deepening.",
  "authors": [
    "Paul Mathieu IMF African Department June"
  ],
  "publishDate": "2010-06-22",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Ethiopia made progress in restoring economic stability in 2009 while maintaining strong growth.\n- Short-term priority: arrest a demonetization trend and promote financial deepening to support sustained growth.\n- IMF 2010 Article IV discussions emphasized adjusting policies to reverse demonetization and reduce vulnerability to shocks."
    },
    {
      "heading": "Macroeconomic developments and response to the 2007–2009 shocks",
      "content": "- Findings:\n  - Consumer price inflation peaked at 64 percent in July 2008 and declined sharply to single digits by mid-2009.\n  - International reserves fell to 1 month of imports at end-October 2008 and recovered to just over 2 months of imports at end-2009.\n  - Ethiopia’s real GDP growth is estimated to have eased to 7 percent in 2009/10 from near double-digit growth recorded in 2008/09.\n  - Following policy adjustments, excess liquidity in the banking system declined; bank credit to the private sector grew but was constrained by credit ceilings.\n- Policy response:\n  - Late 2008 policy package included substantial fiscal and monetary adjustments and elimination of fuel subsidies, with measures to protect vulnerable groups.\n  - IMF support: initial low access disbursement under the Exogenous Shocks Facility (ESF) in February 2009, followed by a 14-month ESF arrangement under the high access component in August 2009.\n  - First review of the government’s program was completed on June 11, allowing Ethiopia to draw $58.7 million."
    },
    {
      "heading": "Remonetization and monetary/financial policy recommendations",
      "content": "- Core recommendation: urgently reform monetary and financial policy to remonetize the economy and foster financial deepening.\n- Specific policy prescriptions:\n  - Raise nominal interest rates on government securities in conjunction with active liquidity management by the central bank.\n  - Ensure nominal interest rates are at least as high as the inflation rate.\n  - Achieve positive real interest rates to support macroeconomic stability and financial system development.\n  - Tighten control on the printing of money by the central bank to keep inflation low.\n  - Lift credit controls (credit ceilings) on financial institutions once excess liquidity is mopped up.\n  - Move toward an independent and active monetary policy focused on achieving low inflation.\n- Rationale:\n  - Monetization and financial deepening are engines of growth and development.\n  - Removal of credit ceilings is needed for monetization and financial deepening to take root.\n  - Fiscal support is required to relieve domestic financing pressures on central bank financing."
    },
    {
      "heading": "Fiscal policy, financial supervision, and structural measures",
      "content": "- Fiscal measures:\n  - Prudent budget management has led to stronger revenue collection and constrained expenditure in the first half of 2009/10; domestic financing repayment occurred.\n  - For 2009/10 as a whole, the deficit will be reduced and domestic financing will be half the original program target.\n  - A stepped-up tax collection effort is being introduced to sustain stronger revenue efforts.\n- Financial sector supervision:\n  - Enhance supervision, especially given the large number of new private bank entrants, to ensure financial stability.\n- Supporting structural measures:\n  - Tax reform strategy to raise government revenue from low levels.\n  - More active liquidity management policy.\n  - Enhanced monitoring of public enterprise financing.\n  - Strengthening of national account statistics.\n  - Over time, implement productivity-enhancing structural policies including financial sector competitiveness and improvements in the business climate."
    },
    {
      "heading": "External sector and debt management",
      "content": "- Exchange rate and external policy:\n  - The exchange rate was devalued twice: 9 percent in July 2009 and 5 percent at end-January 2010 vis-à-vis the U.S. dollar, on top of a modest ongoing crawl depreciation.\n  - These actions, combined with the sharp fall in inflation, brought the real effective exchange rate broadly back into equilibrium and improved external competitiveness.\n  - Further recommended steps: liberalization of the exchange regime, unification of the official and parallel foreign exchange markets, further accumulation of external reserves, and lower import tariffs.\n- External borrowing and debt sustainability:\n  - An updated debt sustainability analysis shows Ethiopia is in the low risk range of public external debt distress, providing room for more external borrowing.\n  - External borrowing, especially on commercial terms, needs to be carefully managed and directed to projects that demonstrate a high rate of return.\n- Medium-term growth drivers:\n  - Sustained high export growth and import substitution will require vigorous implementation of productivity-enhancing structural policies.\n\nIMF Survey: For Sustained Growth, Ethiopia Needs to Promote Remonetization — By Paul Mathieu, IMF African Department, June 22, 2010.\n\n---\n\n\n References\n\n- https://www.imf.org/en/News/country-focus\n- PRESS CENTER\n- IMF Country Focus\n- Read IMF health check report\n- Ethiopia and the IMF\n- Africa’s growth set to rebound\n- Africa’s social spending\n- Africa’s steady capital flows\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar062210a"
    }
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    "Authors: Paul Mathieu IMF African Department June",
    "Published: June 22, 2010",
    "Ethiopia made progress in restoring economic stability in 2009 while maintaining strong growth.",
    "Short-term priority: arrest a demonetization trend and promote financial deepening to support sustained growth.",
    "IMF 2010 Article IV discussions emphasized adjusting policies to reverse demonetization and reduce vulnerability to shocks.",
    "Findings:",
    "Policy response:",
    "Core recommendation: urgently reform monetary and financial policy to remonetize the economy and foster financial deepening.",
    "Specific policy prescriptions:",
    "Rationale:",
    "Fiscal measures:",
    "Financial sector supervision:",
    "Supporting structural measures:",
    "Exchange rate and external policy:",
    "External borrowing and debt sustainability:",
    "Medium-term growth drivers:",
    "[https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[IMF Country Focus](https://www.imf.org/en/news/country-focus)",
    "[Read IMF health check report](https://www.imf.org/external/pubs/cat/longres.cfm?sk=23984.0)",
    "[Ethiopia and the IMF](https://www.imf.org/external/country/eth/index.htm)",
    "[Africa’s growth set to rebound](https://www.imf.org/external/pubs/ft/survey/so/2010/CAR042310A.htm)",
    "[Africa’s social spending](https://www.imf.org/external/pubs/ft/survey/so/2010/CAR042310B.htm)",
    "[Africa’s steady capital flows](https://www.imf.org/external/pubs/ft/survey/so/2010/CAR042310C.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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