{
  "title": "IMF Executive Board Concludes 2018 Article IV Consultation with the Federal Democratic Republic of Ethiopia",
  "publication": "IMF News, December 4, 2018",
  "sourceUrl": "https://www.imf.org/en/news/articles/2018/12/04/pr18452-ethiopia-imf-executive-board-concludes-2018-article-iv-consultation",
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  "summary": "Executive Board concluded the Article IV consultation on November 30, 2018.",
  "publishDate": "2018-12-04",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Executive Board concluded the Article IV consultation on November 30, 2018.\n- In 2017/18, real GDP grew by 7.7 percent, driven by favorable harvests and rapid growth in air transport and manufacturing exports.\n- Political uncertainty, foreign exchange shortages, and adverse terms-of-trade trends hampered activity.\n- Authorities reduced the external current account deficit to 6.4 percent of GDP in 2017/18 through restrictions on public sector imports and borrowing and a tight monetary policy stance.\n- Fiscal deficit (cash basis) was estimated at 3.7 percent of GDP in 2017/18 due to prudent budget execution, with disappointing tax revenue offset by expenditure savings and ring-fencing of pro-poor programs.\n- Inflation was 12 percent in September 2018 (period-average consumer inflation 13.0 percent in 2017/18; end-period consumer prices 14.7 percent in 2017/18).\n- National Bank of Ethiopia (NBE) reduced growth of base money from 32 percent in July 2017 to 19 percent in June 2018; broad money and credit growth remained strong."
    },
    {
      "heading": "Growth and Projections",
      "content": "- Growth forecast for 2018/19: 8.5 percent, supported by improved confidence and external financial inflows (including FDI) easing external financing constraints and foreign exchange shortages.\n- Authorities announced a budget for fiscal year ending June 2019 built on prudent expenditure control and committed to refrain from non-concessional financing for new projects and to shift ongoing projects to concessional financing when possible.\n- NBE adopted further monetary tightening expected to help inflation converge to the authorities’ single-digit target.\n- Authorities announced intention to open key economic sectors to domestic and foreign private investment and competition via privatization, public-private partnerships and concession agreements."
    },
    {
      "heading": "Executive Board Assessment and Key Policy Recommendations",
      "content": "- Directors agreed with staff appraisal: Ethiopia achieved high and inclusive growth for more than a decade with commendable poverty reduction and living standards improvement.\n- Public sector–led development strategy is reaching limits, exacerbating external imbalances and raising public debt vulnerabilities.\n- Directors welcomed tightened macroeconomic policies and the authorities’ ambitious reform program (Growth and Transformation Plan II) aimed at catalyzing private investment and sustainable growth.\n- Fiscal policy:\n  - Need for fiscal consolidation and higher revenue through tax policy and administrative measures.\n  - Further prioritization of public projects, reductions in borrowing requirements of state owned enterprises (SOEs), and phasing out of implicit subsidies.\n  - Rationalization of tax exemptions and excise reform recommended.\n  - Further improvements in public financial management and SOE governance and transparency warranted.\n  - Strengthen public debt sustainability; welcome reprofiling efforts of non-concessional debt and intention to contract new debt on concessional terms.\n  - Commended plans to protect social and pro-poor spending.\n- Monetary and exchange rate policy:\n  - Tighter monetary stance for 2018/19 is warranted to bring inflation to target.\n  - Support monetary stance with restrictive public-sector credit policies, including gradually phasing out central bank financing of the budget.\n  - Exchange rate flexibility recommended to strengthen competitiveness, reduce foreign exchange shortages and support reserve accumulation.\n  - Eliminate remaining exchange restrictions on current transactions.\n- Financial sector reforms:\n  - Develop a market for government securities with market-determined interest rates.\n  - Until market develops, NBE bills should be used solely to manage liquidity and delinked from funding of the Development Bank of Ethiopia, which needs a comprehensive financial assessment.\n  - Channeling tax payments through banks to deepen financial intermediation and reduce corruption opportunities.\n  - Gradual opening of the financial sector to foreign investors to improve services and transfer technology.\n  - Continued efforts to strengthen the AML/CFT framework.\n- Structural reforms:\n  - Implementation critical to promote competitive markets and improve investment climate to catalyze private investment.\n  - Privatizations, PPPs with adequate safeguards, and removal of obstacles to private investment could support renewed growth and attract foreign resources and know how.\n  - Address data gaps and delays to improve quality of statistics.\n  - Welcomed Ethiopia’s decision to join the African Continental Free Trade Agreement and progress toward WTO membership.\n  - Welcomed joint analysis with UN Women showing reducing gender disparities would yield large economic benefits over time."
    },
    {
      "heading": "Fiscal and Debt Outlook (selected figures and ratios)",
      "content": "- Revenue: 12.8 percent of GDP (2016/17); 13.1 percent of GDP (2017/18).\n- Tax revenue: 11.6 percent of GDP (2016/17); 11.1 percent of GDP (2017/18); projected 11.2 percent (2018/19); 11.3 percent (2019/20); 11.9 percent (2021/22).\n- Nontax revenue: 2.6 percent of GDP (2016/17); 1.8 percent of GDP (2017/18); 1.7 percent (2018/19).\n- External grants: 1.4 percent of GDP (2016/17); 0.5 percent of GDP (2017/18); 0.4 percent (2018/19).\n- Expenditure and net lending: 18.2 percent of GDP (2016/17); 17.4 percent (2017/18); 17.5 percent (2018/19).\n- Fiscal balance, excluding grants (cash basis): -4.0 percent of GDP (2016/17); -4.6 percent (2017/18); -4.5 percent (2018/19); -3.6 percent (2019/20).\n- Fiscal balance, including grants (cash basis): -3.3 percent of GDP (2016/17); -3.0 percent (2017/18); -2.9 percent (2018/19).\n- Total financing (including residuals): 3.3 percent of GDP (2016/17); 3.7 percent (2017/18); 3.1 percent (2018/19).\n- Public debt (non-financial public-sector debt): 57.2 percent of GDP (2016/17); 61.0 percent (2017/18); 57.5 percent (2018/19); 56.5 percent (2019/20); projected 55.7 percent (2020/21); 55.5 percent (2021/22); 54.6 percent (2022/23).\n  - Domestic debt: 27.8 percent of GDP (2016/17); 28.1 percent (2017/18); 28.9 percent (2018/19); 29.8 percent (2019/20); 31.3 percent (2020/21); 32.1 percent (2021/22).\n  - External debt (including to the IMF): 29.4 percent of GDP (2016/17); 32.3 percent (2017/18); 27.6 percent (2018/19); 25.9 percent (2019/20); 24.2 percent (2020/21); 22.5 percent (2021/22)."
    },
    {
      "heading": "External Sector, Reserves, and Balance of Payments",
      "content": "- External current account balance, including official transfers: -8.1 percent of GDP (2016/17); -6.4 percent of GDP (2017/18); -6.2 percent (2018/19); -5.8 percent (2019/20); -5.2 percent (2020/21); -4.2 percent (2021/22); -3.8 percent (2022/23).\n- Exports of goods and services (U.S. dollars, f.o.b.) growth: 2.9 percent (2016/17); 13.2 percent (2017/18); projections 12.7 percent (2018/19); 12.6 percent (2019/20); 13.6 percent (2020/21); 14.3 percent (2021/22).\n- Imports of goods and services (U.S. dollars, c.i.f.) growth: -4.8 percent (2016/17); 0.2 percent (2017/18); projections 5.9 percent (2018/19); 7.5 percent (2019/20); 6.0 percent (2020/21).\n- Export volume (goods): -1.1 percent (2016/17); 11.0 percent (2017/18); projected 9.8 percent (2018/19); 8.3 percent (2019/20); 14.0 percent (2020/21).\n- Import volume (goods): -5.4 percent (2016/17); -9.2 percent (2017/18); projected 9.5 percent (2018/19); 4.4 percent (2019/20); 6.6 percent (2020/21); 4.6 percent (2021/22); 5.0 percent (2022/23).\n- Nominal effective exchange rate (end of period): -3.7 percent (2016/17); -16.1 percent (2017/18).\n- Real effective exchange rate (end of period): 2.1 percent (2016/17); -7.1 percent (2017/18).\n- Overall balance of payments (in millions of U.S. dollars): 658 (2016/17); 202 (2017/18); projected 550 (2018/19); 474 (2019/20); 829 (2020/21); 1,158 (2021/22); 1,642 (2022/23).\n- Gross official reserves (in millions of U.S. dollars): 3,197 (2016/17); 2,847 (2017/18); projected 3,397 (2018/19); 3,872 (2019/20); 4,700 (2020/21); 5,858 (2021/22); 7,500 (2022/23).\n- Reserves in months of imports of goods and nonfactor services of following year: 2.0 (2016/17); 2.5 (2017/18)."
    },
    {
      "heading": "Money, Credit, and Savings-Investment Balances",
      "content": "- Change in net foreign assets: 66.8 (2016/17); 3.5 (2017/18); projected -18.9 (2018/19); 62.2 (2019/20); 64.8 (2020/21); 66.9 (2021/22); 49.8 (2022/23).\n- Change in net domestic assets (including other items net): 26.7 (2016/17); 31.0 (2017/18); projected 24.6 (2018/19); 20.5 (2019/20); 19.3 (2020/21); 19.2 (2021/22); 20.2 (2022/23).\n- Broad money growth: 28.8 percent (2016/17); 29.2 percent (2017/18); projected 22.3 percent (2018/19); 22.0 percent (2019/20); 21.4 percent (2020/21); 22.2 percent (2021/22); 22.8 percent (2022/23).\n- Base money growth: 22.7 percent (2016/17); 19.1 percent (2017/18); projected 13.3 percent (2018/19); 13.5 percent (2019/20).\n- Velocity (GDP/broad money): 3.15 (2016/17); 2.89 (2017/18); projections 2.84 (2018/19); 2.72 (2019/20); 2.61 (2020/21); 2.47 (2021/22); 2.34 (2022/23).\n- Gross domestic savings: 24.1 percent of GDP (2016/17); 23.4 percent (2017/18); projected 23.8 percent (2018/19); 26.6 percent (2019/20); 28.2 percent (2020/21).\n- Gross domestic investment: 39.0 percent of GDP (2016/17); 38.2 percent (2017/18); projected 37.3 percent (2018/19); 37.5 percent (2019/20); 37.4 percent (2020/21); 39.2 percent (2021/22); 39.8 percent (2022/23).\n  - Public investment: 14.6 percent of GDP (2016/17); 13.9 percent (2017/18); projected 12.2 percent (2018/19); 9.9 percent (2019/20); 9.7 percent (2020/21).\n  - Private investment: 24.4 percent of GDP (2016/17); 24.3 percent (2017/18); projected 25.1 percent (2018/19); 25.3 percent (2019/20); 27.5 percent (2020/21); 29.5 percent (2021/22); 30.0 percent (2022/23).\n- Resource gap: -14.9 percent of GDP (2016/17); -15.1 percent (2017/18); projected -14.1 percent (2018/19); -13.5 percent (2019/20); -12.6 percent (2020/21); -11.6 percent (2021/22)."
    },
    {
      "heading": "Other Notes and Expectations",
      "content": "- Directors encouraged elimination of remaining exchange restrictions on current transactions.\n- Development Bank of Ethiopia requires a comprehensive financial assessment.\n- Next Article IV consultation expected on the standard 12-month cycle.\n\nIMF Communications Department, Press Release No. 18/452 (December 4, 2018).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- The Federal Democratic Republic of Ethiopia and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/12/04/pr18452-ethiopia-imf-executive-board-concludes-2018-article-iv-consultation"
    }
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    "Published: December 4, 2018",
    "Executive Board concluded the Article IV consultation on November 30, 2018.",
    "In 2017/18, real GDP grew by 7.7 percent, driven by favorable harvests and rapid growth in air transport and manufacturing exports.",
    "Political uncertainty, foreign exchange shortages, and adverse terms-of-trade trends hampered activity.",
    "Authorities reduced the external current account deficit to 6.4 percent of GDP in 2017/18 through restrictions on public sector imports and borrowing and a tight monetary policy stance.",
    "Fiscal deficit (cash basis) was estimated at 3.7 percent of GDP in 2017/18 due to prudent budget execution, with disappointing tax revenue offset by expenditure savings and ring-fencing of pro-poor programs.",
    "Inflation was 12 percent in September 2018 (period-average consumer inflation 13.0 percent in 2017/18; end-period consumer prices 14.7 percent in 2017/18).",
    "National Bank of Ethiopia (NBE) reduced growth of base money from 32 percent in July 2017 to 19 percent in June 2018; broad money and credit growth remained strong.",
    "Growth forecast for 2018/19: 8.5 percent, supported by improved confidence and external financial inflows (including FDI) easing external financing constraints and foreign exchange shortages.",
    "Authorities announced a budget for fiscal year ending June 2019 built on prudent expenditure control and committed to refrain from non-concessional financing for new projects and to shift ongoing projects to concessional financing when possible.",
    "NBE adopted further monetary tightening expected to help inflation converge to the authorities’ single-digit target.",
    "Authorities announced intention to open key economic sectors to domestic and foreign private investment and competition via privatization, public-private partnerships and concession agreements.",
    "Directors agreed with staff appraisal: Ethiopia achieved high and inclusive growth for more than a decade with commendable poverty reduction and living standards improvement.",
    "Public sector–led development strategy is reaching limits, exacerbating external imbalances and raising public debt vulnerabilities.",
    "Directors welcomed tightened macroeconomic policies and the authorities’ ambitious reform program (Growth and Transformation Plan II) aimed at catalyzing private investment and sustainable growth.",
    "Fiscal policy:",
    "Monetary and exchange rate policy:",
    "Financial sector reforms:",
    "Structural reforms:",
    "Revenue: 12.8 percent of GDP (2016/17); 13.1 percent of GDP (2017/18).",
    "Tax revenue: 11.6 percent of GDP (2016/17); 11.1 percent of GDP (2017/18); projected 11.2 percent (2018/19); 11.3 percent (2019/20); 11.9 percent (2021/22).",
    "Nontax revenue: 2.6 percent of GDP (2016/17); 1.8 percent of GDP (2017/18); 1.7 percent (2018/19).",
    "External grants: 1.4 percent of GDP (2016/17); 0.5 percent of GDP (2017/18); 0.4 percent (2018/19).",
    "Expenditure and net lending: 18.2 percent of GDP (2016/17); 17.4 percent (2017/18); 17.5 percent (2018/19).",
    "Fiscal balance, excluding grants (cash basis): -4.0 percent of GDP (2016/17); -4.6 percent (2017/18); -4.5 percent (2018/19); -3.6 percent (2019/20).",
    "Fiscal balance, including grants (cash basis): -3.3 percent of GDP (2016/17); -3.0 percent (2017/18); -2.9 percent (2018/19).",
    "Total financing (including residuals): 3.3 percent of GDP (2016/17); 3.7 percent (2017/18); 3.1 percent (2018/19).",
    "Public debt (non-financial public-sector debt): 57.2 percent of GDP (2016/17); 61.0 percent (2017/18); 57.5 percent (2018/19); 56.5 percent (2019/20); projected 55.7 percent (2020/21); 55.5 percent (2021/22); 54.6 percent (2022/23).",
    "External current account balance, including official transfers: -8.1 percent of GDP (2016/17); -6.4 percent of GDP (2017/18); -6.2 percent (2018/19); -5.8 percent (2019/20); -5.2 percent (2020/21); -4.2 percent (2021/22); -3.8 percent (2022/23).",
    "Exports of goods and services (U.S. dollars, f.o.b.) growth: 2.9 percent (2016/17); 13.2 percent (2017/18); projections 12.7 percent (2018/19); 12.6 percent (2019/20); 13.6 percent (2020/21); 14.3 percent (2021/22).",
    "Imports of goods and services (U.S. dollars, c.i.f.) growth: -4.8 percent (2016/17); 0.2 percent (2017/18); projections 5.9 percent (2018/19); 7.5 percent (2019/20); 6.0 percent (2020/21).",
    "Export volume (goods): -1.1 percent (2016/17); 11.0 percent (2017/18); projected 9.8 percent (2018/19); 8.3 percent (2019/20); 14.0 percent (2020/21).",
    "Import volume (goods): -5.4 percent (2016/17); -9.2 percent (2017/18); projected 9.5 percent (2018/19); 4.4 percent (2019/20); 6.6 percent (2020/21); 4.6 percent (2021/22); 5.0 percent (2022/23).",
    "Nominal effective exchange rate (end of period): -3.7 percent (2016/17); -16.1 percent (2017/18).",
    "Real effective exchange rate (end of period): 2.1 percent (2016/17); -7.1 percent (2017/18).",
    "Overall balance of payments (in millions of U.S. dollars): 658 (2016/17); 202 (2017/18); projected 550 (2018/19); 474 (2019/20); 829 (2020/21); 1,158 (2021/22); 1,642 (2022/23).",
    "Gross official reserves (in millions of U.S. dollars): 3,197 (2016/17); 2,847 (2017/18); projected 3,397 (2018/19); 3,872 (2019/20); 4,700 (2020/21); 5,858 (2021/22); 7,500 (2022/23).",
    "Reserves in months of imports of goods and nonfactor services of following year: 2.0 (2016/17); 2.5 (2017/18).",
    "Change in net foreign assets: 66.8 (2016/17); 3.5 (2017/18); projected -18.9 (2018/19); 62.2 (2019/20); 64.8 (2020/21); 66.9 (2021/22); 49.8 (2022/23).",
    "Change in net domestic assets (including other items net): 26.7 (2016/17); 31.0 (2017/18); projected 24.6 (2018/19); 20.5 (2019/20); 19.3 (2020/21); 19.2 (2021/22); 20.2 (2022/23).",
    "Broad money growth: 28.8 percent (2016/17); 29.2 percent (2017/18); projected 22.3 percent (2018/19); 22.0 percent (2019/20); 21.4 percent (2020/21); 22.2 percent (2021/22); 22.8 percent (2022/23).",
    "Base money growth: 22.7 percent (2016/17); 19.1 percent (2017/18); projected 13.3 percent (2018/19); 13.5 percent (2019/20).",
    "Velocity (GDP/broad money): 3.15 (2016/17); 2.89 (2017/18); projections 2.84 (2018/19); 2.72 (2019/20); 2.61 (2020/21); 2.47 (2021/22); 2.34 (2022/23).",
    "Gross domestic savings: 24.1 percent of GDP (2016/17); 23.4 percent (2017/18); projected 23.8 percent (2018/19); 26.6 percent (2019/20); 28.2 percent (2020/21).",
    "Gross domestic investment: 39.0 percent of GDP (2016/17); 38.2 percent (2017/18); projected 37.3 percent (2018/19); 37.5 percent (2019/20); 37.4 percent (2020/21); 39.2 percent (2021/22); 39.8 percent (2022/23).",
    "Resource gap: -14.9 percent of GDP (2016/17); -15.1 percent (2017/18); projected -14.1 percent (2018/19); -13.5 percent (2019/20); -12.6 percent (2020/21); -11.6 percent (2021/22).",
    "Directors encouraged elimination of remaining exchange restrictions on current transactions.",
    "Development Bank of Ethiopia requires a comprehensive financial assessment.",
    "Next Article IV consultation expected on the standard 12-month cycle.",
    "[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)"
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