IMF to send experts to review Ethiopia’s achievements

Banking Act to be revised to increase NBE’s autonomy

By Tamiru Geda

A delegation from the World Bank and IMF are scheduled to come to Ethiopia by the end of November 2003 to see how far the government of Ethiopia went through with the proposals on economic and financial policies submitted to the IMF’s Managing Director Mr. Horst Kohler.
Ethiopia submitted a 17-page memorandum to the IMF in July, undersigned by Sufian Ahmed, Minister of Finance and Economic Development and Teklewold Atnafu, Governor of the National Bank of Ethiopia.
The Memorandum of Economic and Financial policies explains the policies that Ethiopia intends to implement in the context of its request for financial support from the IMF.
Under the memorandum’s review of the monetary and financial sector reform, money supply is projected to rise by about 13.4 percent in 2003/04 and pledges are made to continue sterilizing the excess reserve held by commercial banks, while interest rate police will stay under review and shall remain market determined.
In summary the monetary policy is projected to remain geared at achieving the inflation and international reserve targets under the program.
The memorandum addresses evaluations of the implementation of the second annual program (October 2001- September 2002) and performance through March 2003 on provisions of the three-year arrangement under the poverty reduction and growth facility (PRGF) provided as per the arrangement between the government of Ethiopia and the International Monetary Fund.
The memorandum also presets the government objectives and policies for the third annual program running from July 2003 up to June 2004, inline with the strategy presented in Ethiopia’s sustained development and poverty reduction program.
Evaluations of the second annual program, the memorandum by Minister Sufian Ahmed and Governor Teklewold, states as broadly satisfactory, notwithstanding a severe drought and continued deterioration of the terms of trade.
The government has also requested the fifth disbursement of SDR 10.429 million under the PRGF arrangement. The fund is releasable after the executive board of the IMF completes review of the fourth arrangement. The fifth review is scheduled for completion at the end of December 2003.
The government has also requested additional interim enhanced HIPC assistance of SDR 2.111 million.
The memorandum covers review of performance under the second annual program and through March 2003, the program for 2003/04, under which are reviewed -fiscal policy, Monetary and financial sector reform, external sector and financing requirements, social policies, PRSP, and HIPC and other structural reforms.
Measures during 2003/04 under the monetary and financial sector review are projected to include full provisioning by banks for NPLs and other doubtful asset inline with international best practices by January 2004, finalizing the financial restructuring of the Development Bank of Ethiopia by the end of 2003,and taking steps to strengthen the National Bank of Ethiopia including revising the banking act to increase NBE’s autonomy.
With regards to the issue related to the un-audited accounts of the Construction and Business Bank, the memorandum states that it will be resolved and shares of the bank will be re-offered for sale to the Ethiopian public by the end of September 2003.
The government also pledged to finalize, adopt and commence implementing, by end November 2003, a detailed financial restructuring plan to restore CBE’s profitability based on the audit conducted by KPMG that established that the bank’s NPL at the end of June 2002 amounted to 5.8 billion birr.