## IMF Executive Board Concludes 2017 Article IV Consultation with the Federal Democratic Republic of Ethiopia

_IMF News, January 17, 2018_

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## Bibliographic details
- Published: January 17, 2018

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### Overview and key messages
- Executive Board concluded the Article IV consultation on January 12, 2018.
- Ethiopia recorded annual average GDP growth of about ten percent in the last decade.
- Poverty rate fell from 44 percent in 2000 to 23.5 percent in 2015/16.
- Executive Directors commended human development improvements and output growth, and the effective policy response to the recent drought.
- Directors highlighted external imbalances and inadequate reserve buffers as a key risk and urged determined policy actions to control external borrowing.

### Economic performance in 2016/17
- GDP growth in 2016/17 is estimated at 9 percent, driven by agriculture rebound and expanded industrial activity.
- Current account deficit declined to 8.2 percent of GDP in 2016/17 from 9.1 percent the previous year.
- Export revenues were largely unchanged despite significant volume growth due to low global agricultural commodity prices.
- Foreign direct investment (FDI) growth was 27.6 percent due to investments in new industrial parks and privatization inflows.
- International reserves at end-2016/17 stood at US$3.2 billion (1.8 months of prospective imports cover).
- Inflation was 13.6 percent in November 2017.

### Policy measures undertaken by authorities
- In October 2017, the National Bank of Ethiopia (NBE) devalued the birr by 15 percent relative to the U.S. dollar.
- NBE simultaneously increased interest rates and adopted a restrictive stance to minimize adverse effects on inflation.
- Since October 2016, the Ministry of Finance and Economic Cooperation (MOFEC) implemented cuts in external borrowing by the government and public enterprises (SOEs), and reduced outstanding non-concessional commercial debt.
- General government deficit outturn in 2016/17 was 3.4 percent of GDP (including privatization).
- The 2017/18 budget speech announced additional consolidation policies, with the budget deficit projected at 2.5 percent of GDP.

### Executive Board appraisal and recommendations
- Directors commended:
  - Restrictive public sector borrowing policy to contain external debt and imports while protecting pro-poor spending.
  - Devaluation of the currency to regain competitiveness.
  - Tight monetary policy to rein in inflation.
- Directors recommended:
  - Continue determined implementation of policies to reduce external imbalances.
  - Maintain controls on external borrowing.
  - Consider a more flexible exchange rate to preserve competitiveness and foster export diversification.
  - Eliminate exchange restrictions.
  - Strengthen domestic revenue mobilization and accelerate ongoing tax administration reforms.
  - Improve management and oversight of public enterprises, including audits for some large SOEs.
  - Use public-private partnerships (PPPs), long-term concessions, and privatization with attention to minimizing fiscal risks.
  - Develop a broader range of indirect monetary policy instruments and promote an active inter-bank market.
  - Monitor NPLs of the national development bank and shift its funding mechanism to a less distortive system.
  - Implement the action plan to further strengthen the AML/CFT framework.
  - Adopt international standards for budgetary, monetary, and financial statistics and address data weaknesses in national accounts and public sector financial reporting.

### Growth outlook and risks
- Near-term growth:
  - Growth is expected to stay high in 2017/18, at 8.5 percent, supported by drought recovery and export expansion as new manufacturing facilities and infrastructure come online.
- Medium-term growth:
  - Growth is expected to remain around 8 percent, supported by sustained expansion in exports and investment under GTP II.
- Risks:
  - External imbalances and inadequate reserve buffers remain a key risk.
  - Inflationary pressures that could necessitate further policy tightening.
  - Need for continued reforms to strengthen the business environment and preserve competitiveness gains.

### Selected economic and social indicators (as reported)
- Nominal GDP (2016, billions of U.S. dollars): 72.5
- Poverty headcount ratio (percent of population, 2015/16): 23.5
- GNI per capita, Atlas method (2015, current US$): 590
- Food poverty (percent of population): 24.8
- Population total (2016, million): 91.2
- Income shared by highest 10 percent of population (2010): 27.4
- Urban population (2015, percent): 19.5
- Income shared by lowest 20 percent of population: 8.0
- Life expectancy at birth (2014, years): 64.0
- GINI index: 30.0

- GDP at constant prices (annual percentage change):
  - 2013/14: 10.3
  - 2014/15: 10.4
  - 2015/16: 9.0
  - 2016/17: 8.5 (Est.)
  - 2017/18 (IMF Staff proj.): 8.3
  - 2018/19 (IMF Staff proj.): 8.1

- Consumer prices (period average):
  - 2013/14: 7.7
  - 2014/15: 9.7
  - 2015/16: 7.2
  - 2016/17: 11.5
  - 2017/18 (proj.): 8.1

- Consumer prices (end period):
  - 2013/14: 8.5
  - 2014/15: 7.5
  - 2015/16: 8.8
  - 2016/17: 12.0
  - 2017/18 (proj.): 8.0

- External current account balance, including official transfers (percent of GDP):
  - 2013/14: -6.4
  - 2014/15: -10.2
  - 2015/16: -9.1
  - 2016/17: -8.2
  - 2017/18 (proj.): -7.7
  - 2018/19 (proj.): -7.5
  - 2019/20 (proj.): -6.8
  - 2020/21 (proj.): -6.1
  - 2021/22 (proj.): -5.5

- Gross official reserves (in millions of U.S. dollars):
  - 2013/14: 2,496
  - 2014/15: 3,248
  - 2015/16: 3,402
  - 2016/17: 3,197
  - 2017/18 (proj.): 3,673
  - 2018/19 (proj.): 4,361
  - 2019/20 (proj.): 4,963
  - 2020/21 (proj.): 5,705
  - 2021/22 (proj.): 6,286

- Months of imports cover (goods and nonfactor services of following year): 1.5 (2013/14)

- Public debt (non-financial public sector debt, percent of GDP):
  - 2013/14: 46.8
  - 2014/15: 54.0
  - 2015/16: 55.4
  - 2016/17: 56.9
  - 2017/18 (proj.): 59.0
  - 2018/19 (proj.): 58.1
  - 2019/20 (proj.): 55.5
  - 2020/21 (proj.): 53.1
  - 2021/22 (proj.): 50.7

- International reserves at end-2016/17: US$3.2 billion (1.8 months of prospective imports cover).

- General government deficit outturn in 2016/17 (including privatization): 3.4 percent of GDP.
- 2017/18 budget deficit projected at: 2.5 percent of GDP.
- FDI growth in 2016/17: 27.6 percent.
- Inflation in November 2017: 13.6 percent.
- Birr devaluation in October 2017: 15 percent relative to the U.S. dollar.

*IMF Press Release No. 18/06, January 17, 2018.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [The Federal Democratic Republic of Ethiopia and the IMF](http://www.imf.org/external/country/ETH/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm.](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/01/17/pr1806-imf-executive-board-concludes-2017-article-iv-consultation-with-ethiopia_