Statement by an IMF Staff Mission on the 2012 Article IV Consultation with Ethiopia

Press Release No. 12/224
June 14, 2012

An International Monetary Fund (IMF) mission visited Addis Ababa May 30-June 13 to conduct discussions for the 2012 Article IV Consultation. The mission met with Prime Minister Meles Zenawi, Minister of Finance and Economic Development Sufian Ahmed, Governor of the National Bank of Ethiopia Teklewold Atnafu, Economic Advisor to the Prime Minister Newai Gebre-ab, other senior officials, as well representatives of the private sector, the international community, and civil society. 

At its conclusion, the mission head Mr. Michael Atingi-Ego issued the following statement:

“The Ethiopian economy continues to grow at a robust pace, poverty continues to fall, and inflation, while still high, has been declining. The expansion in economic activity has been supported by robust export growth and public enterprise investments. Tight monetary and fiscal policies have contributed to the deceleration of inflation, which also reflects declining international commodity prices. Monetary tightening, reflected in a contraction of base money, was achieved by terminating central bank financing of the budget and significant sales of foreign exchange. As a result of this foreign exchange intervention, gross official foreign reserves have declined to under two months of import coverage. The budget execution has been prudent, but increased domestic credit to public enterprises has been providing strong fiscal impulse.

"For 2011/12, the mission projects real GDP growth at 7 percent and end-year inflation at about 22 percent. A similar growth rate and single digits inflation are achievable in 2012/13 if implementation of tight monetary and fiscal policies is maintained.

“Going forward, the mission recommends continuing the fight against inflation. Raising interest rates immediately would enhance the activation of the Treasury bill market for liquidity management and monetary policy implementation. Higher interest rates will also support domestic savings mobilization efforts that are key for financing investment to achieve ambitious objectives in the Growth and Transformation Plan (GTP). In addition, the policy of no central bank financing of the budget should remain in place to send a strong signal of the government’s commitment to fight inflation.

“The financing of the GTP should strike a balance between seeking to promote growth and ensuring macroeconomic stability. Given the authorities’ objective of financing long-term projects by domestic sources and the resulting strong financial real sector linkages, it will be important to increase the oversight of the financial sector to ensure its stability. On the external front, rebuilding gross official foreign reserves will provide a buffer against potential exogenous shocks given the current volatile global environment. A comprehensive monitoring of both external and domestic public debt would help maintain debt sustainability.

“The IMF Executive Board is expected to complete the 2012 Article IV consultation in mid-September 2012.”



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