The delegation of the International Monetary Fund (IMF) during their latest visit have disclosed that Ethiopia’s exports and foreign direct investment (FDI) have held up well despite the turbulent economic environment.
A staff team from the IMF, led by Sonali Jain-Chandra, visited Ethiopia for a technical staff visit with the Ethiopian authorities during June 13-17.
In the statement, the international partner stated that the purpose of the staff visit was to discuss the authorities’ reform plans and economic developments, which could provide important input for a future mission to negotiate for a potential new Fund program.
It projected the growth to have fallen to 3.8 percent for 2021/22 fiscal year resulting from the conflict in northern Ethiopia, lower agricultural production, a sharp fall in donor financing and intensifying foreign exchange (FX) shortages, drought, and spillovers from the war in Ukraine. “Inflation has been high and rising, in addition to the rapidly increasing food prices and supply-side constraints,” the statement read.
It can be recalled that owing to the conflict in the northern parts of Ethiopia which was sparked by the TPLF, a former dominant political party in the country, had rendered international partners to pressure the central government including by suspending significant amounts of support that they promised.
IMF said that the Ethiopian economy has been subject to multiple shocks over the past two and a half years, including the COVID-19 pandemic, drought, conflict in the north of Ethiopia, and the war in Ukraine, “this has created significant macroeconomic and humanitarian challenges.”
It added that delivery of a debt treatment for Ethiopia under the G20 Common Framework, as part of a package supported by an IMF program, is essential to reduce debt vulnerabilities.
The authorities reiterated their interest in an IMF program to support their reform agenda.
“The Fund will continue to cooperate closely with the creditor committee to provide technical support to the Common Framework process and is working on steps towards commencing discussions on an IMF program as soon as conditions allow,” it said.
A year ago IMF called for the swift formation of the creditor committee for Ethiopia to enable the timely delivery of the debt operation that Ethiopia requested.
Ethiopia requested in February last year to G20 and Paris Club creditors to benefit from a debt operation under the G20 Common Framework. The authorities’ aim was to create fiscal space for development spending and to lower the risk of debt distress rating to moderate by re-profiling debt service obligations. The formation of the committee is said to help Ethiopia in this regard.
The IMF statement said that despite the economic environment being full of challenges, the country has enabled to attain positive export earnings and FDI.
“However, rising global commodity prices for fuel, food and fertilizer driven, in part, by the war in Ukraine, will increase imports and widen the current account deficit in 2021/22 fiscal year. This, combined with lower external loan disbursements has weakened the external sector and put downward pressure on reserves, which remain inadequate,” it added.
The IMF has also projected the budget deficit to expand while the reform of the Treasury bill market has facilitated substantial increases in the volume of issuances; the lack of external financing has required central bank advances to finance the larger deficit.
It said that the authorities remain committed to improving the efficiency of public investment, oversight and reforms of state-owned enterprises (SOEs) and containing public sector borrowing, consistent with their goal of meeting development objectives while strengthening debt sustainability.
“Progress on implementing roadmaps on FX reforms and modernization of monetary policy should help address FX shortages and reduce inflation. Revenue reforms consistent with ambitious revenue projections in the government’s 10-year plan will support sustainable financing of development needs,” it said.
It projected that continued progress on reforms to shift from public to private sector-led growth as laid out in the Homegrown Economic Reform Plan will contribute to high and sustainable growth over the long term.
On its regular evaluation through Article IV consultation, the IMF unusually did not publish Ethiopia’s last budget year’s economic evolution.
On its economic outlook publication that was issued April, 2022, the monetary fund disclosed that Ethiopia’s growth is expected to slow down from 6.3 percent in the fiscal year that ended 2021 to 3.8 percent in July 2022 because of the intensified military conflict in the first half of the fiscal year, the lingering effects of the pandemic amid low vaccination rates, and the spillovers from the war in Ukraine.