IMF and Ethiopia Reach Staff-Level Agreement on Second Review Under the Exogenous Shocks Facility

Press Release No. 10/346
September 16, 2010

An International Monetary Fund (IMF) mission led by Mr. Paul Mathieu visited Addis Ababa September 6-16 to conduct discussions for the second and final review under the program supported by the Exogenous Shocks Facility (ESF). The mission met with Prime Minister Meles Zenawi, Minister of Finance and Economic Development Sufian Ahmed, and Governor of the National Bank of Ethiopia Teklewold Atnafu, other senior officials, as well representatives of the private sector, the international community, and civil society.

At the conclusion of the mission, Mr. Mathieu issued the following statement:

“Good progress was made in the first half of 2010 in macroeconomic stabilization. Macroeconomic conditions continued to improve while broad-based growth momentum has been maintained. Overall consumer price inflation continued to decelerate to 5.7% in July 2010 from 7.1% at end-December 2009; non-food inflation eased modestly to 18%. Foreign exchange reserves rose to 2.2 months of imports. Budget performance in fiscal year 2009/10 was commendable with higher revenues and much lower domestic financing than targeted, while continuing a strong focus on public infrastructure investment and social spending. All quantitative performance targets under the program at July 7, 2010 were met with margins. The structural benchmarks were also met.

“The economic outlook remains favorable with continued strong growth expected. Macroeconomic policy focuses on maintaining single digit inflation, rebuilding foreign exchange reserves, and promoting increased savings and credit to foster economic growth. The devaluation of the Birr (16.5% in foreign currency terms) on September 1, supported by a prudent fiscal policy and monetary policy, will help stimulate exports, import substitution, and economic growth.

“A monetary policy framework that targets low growth of the central bank’s reserve money, made possible by a phasing out central bank financing of the budget, has recently been adopted. It also aims to achieve interest rates that are positive in real terms and tighten liquidity. The mission welcomes this change which will set the stage for an expansion in financial intermediation needed to support the ambitious objectives set out in the new Growth and Transformation Plan that is currently under preparation.

“Going forward the authorities are encouraged to reinforce financial sector supervision, promote private sector development, and implement the plans to improve the national account statistics and raise tax revenues.

“The IMF Executive Board is expected to consider the review and associated disbursement of SDR 40.1 million (about US$61.3 million) in early November 2010. The 14-month arrangement under the High Access Component of the Exogenous Shocks Facility was approved August 26, 2009 for SDR 153.8 million (about US$235 million) (see Press release No.09/289).”



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