IMF Reaches a Staff-Level Agreement for the First Review of the Extended Credit Facility-Extended Fund Facility for Ethiopia

IMF News, August 21, 2020

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Canonical URL: IMF Reaches a Staff-Level Agreement for the First Review of the Extended Credit Facility-Extended Fund Facility for Ethiopia

Staff team led by Sonali Jain-Chandra held discussions with Ethiopian authorities during a virtual mission on June 5–9, June 15–19, and July 27–31 for the first review of Ethiopia’s economic program supported by the IMF’s ECF-EFF arrangements.
Press Release No. 20/284 dated August 21, 2020.
End-of-Mission statement: views are those of IMF staff and do not necessarily represent the IMF Executive Board; staff will prepare a report for the IMF's Executive Board subject to management approval.

The COVID-19 pandemic has created large health and social needs and had a significant negative impact on economic activity.
Economic growth is estimated to have slowed considerably in 2019/20, and projected to be subdued in 2020/21, with a gradual recovery expected to begin in late 2020.
Main economic impact expected to fall on air transport, travel and tourism, and industrial production due to social distancing measures and weaker external demand.
Risks to the economic outlook are tilted significantly to the downside amid uncertainty regarding the magnitude and duration of the pandemic and other risks including the locust infestation experienced in some parts of the country.

Program performance under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF) had gotten off to a good start, with most end-December 2019 performance criteria met.
The onset of the pandemic necessitated a reprioritization of near-term macroeconomic objectives and a reexamination of near-term macroeconomic policies.
IMF mission reached a staff-level agreement on policy measures for the completion of the first review under the ECF-EFF arrangements.
The program review focused on:
- Implementing an effective near-term policy response to the COVID-19 crisis to set the stage for a strong and durable recovery.
- Formulating a path to achieving the authorities’ development objectives supported under the program.

In support of the authorities’ pandemic response, the IMF disbursed US $412 million of emergency financing in April through its Rapid Financing Instrument.
The supplementary budget approved in May provided resources for additional healthcare and humanitarian spending and approved fiscal relief to businesses.
The National Bank of Ethiopia (NBE) provided additional liquidity to support the banking system.
Financial support from Ethiopia’s international partners, including through debt reprofiling, will be critical to addressing the economic and social impact of the pandemic and to support ongoing reform efforts.
Additional debt reprofiling from external creditors would help reduce debt vulnerabilities.

Maintain support for vulnerable households and index recipient benefits under existing social safety net programs to ensure increased support for the most vulnerable.
Revert to policies that ensure macroeconomic stability and a return to sustained inclusive growth once the pandemic abates.
Strengthen domestic revenue mobilization so Ethiopia can meet its development objectives in a sustainable manner.
Control public sector borrowing and reform the public sector to support a continued decline of the external debt to GDP ratio.
After reserve money growth was allowed to rise as the pandemic struck, reserve money growth should be appropriately slowed in the second half of 2020/21 to address elevated inflation as conditions normalize.
Continue important steps to develop the financial sector and build a modern monetary policy framework.
Adopt and implement the roadmap to guide reforms toward a market-clearing exchange rate to help address the existing foreign exchange shortage.
Advance structural reforms consistent with the Homegrown Economic Reform Program to boost the role of the private sector:
- Adoption of the new investment law earlier this year will facilitate private investment.
- Reforms in the telecom sector, including progress on the issuance of two new telecom licenses, will further strengthen the business environment.

During the virtual mission, the IMF team met with Minister of Finance Ahmed Shide; Governor of the National Bank of Ethiopia, Dr. Yinager Dessie; Commissioner of the National Planning Commission, Dr. Fitsum Assefa; other government officials; representatives of the private sector, including banks; and the international donor community.
The IMF team extended its appreciation to the authorities for their cooperation and productive discussions.

Source: IMF Press Release No. 20/284, August 21, 2020.