Ethiopia: Remarkable Progress Over More Than a Decade

IMF News, December 4, 2018

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High growth over more than a decade has led to a significant reduction in poverty and improved living standards.
Large infrastructure investments are beginning to bear fruit and the provision of public services such as education and health has increased dramatically.
Welfare indicators:
- Number of maternal deaths per 100,000 live births fell from 1,080 in 1995 to 353 in 2015.
- Proportion of people living in poverty fell from over 45 percent in 1995 to around 23 percent in 2015.

2017/18 growth dipped to 7.7 percent due to:
- Reduced government public expenditure aimed at tackling the growing current account deficit and indebtedness.
- Political uncertainty.
- Severe foreign exchange shortages.
Near-term projections and expectations:
- Growth is expected to recover to 8.5 percent this fiscal year as the political climate settles and investment recovers.
- The current account deficit should continue to narrow.
- IMF staff expect inflation—which currently exceeds the single-digit authorities’ target—to continue to fall due to an appropriately tight monetary policy.

Large external imbalances and the public debt burden are constraining future growth and pose risks to the medium-term outlook.
Debt assessment:
- While debt is sustainable in the medium term, Ethiopia remains at high risk of debt distress.
Policy priorities to mitigate risks:
- Restrained public sector borrowing—particularly on non-concessional loans—while protecting pro-poor spending programs.
- Mobilize tax revenues and raise exports to reduce vulnerabilities over the medium term.

Political and reform context:
- Since his election, Prime Minister Abiy has created space for a more inclusive political dialogue and taken steps to bring stability to the region.
- The new government has announced an ambitious reform program aimed at opening the economy to private investment and competition.
Public-private partnerships and privatization:
- A new legal framework for public-private partnerships can strengthen growth by promoting private sector development and provision of public services while reducing government costs.
- The report calls for privatization and removal of barriers to private investment in key sectors, supporting government policy announcements.
Financial sector and exchange rate policies:
- Develop the domestic financial system by introducing a market for government securities with market-determined interest rates.
- This would allow the central bank to reduce direct financing of the government and increase the effectiveness of monetary policy in maintaining low and stable inflation.
- Reform the Development Bank of Ethiopia:
- IMF staff encourage authorities to review the strategy and financial model of the Development Bank of Ethiopia, which has seen lower-than-expected returns to its investments in recent years.
- A more flexible system for the exchange rate is needed to:
- Increase foreign exchange reserves.
- Improve external competitiveness.
- Increase the availability of foreign exchange.

Analysis by IMF staff and UN Women finds promoting gender equality could yield large economic benefits over time.
Key areas to close gender gaps:
- Educational attainment.
- Formal labor force participation rates.
- Access to quality land and other resources.
Government actions:
- The new government has appointed a gender balanced cabinet.
- Women have been placed in key decision-making positions, including the presidency and the head of the Supreme Court.

Source: International Monetary Fund — Ethiopia: Remarkable Progress Over More Than a Decade