IMF forecasts Ethiopia’s debt will decrease significantly

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The International Monetary Fund (IMF) forecasts Ethiopia’s public debt will decrease significantly in the current budget year.
The IMF Article IV Consultation that evaluates Ethiopia’s economy indicated that the country public debt has dropped to 56.8 percent of the GDP in the past fiscal year from 59.5 percent a year ago.
“Policies appropriately targeted at containing public investment and debt contributed to a further narrowing of the current account deficit to 4.5 percent of GDP and a reduction in public and publicly-guaranteed debt to 57 percent of GDP,” the IMF statement stated.
The consultation forecasts that it will more minimize to 53.4 percent in the current budget year and further in the coming years.
It said that the external debt has declined to 28.2 percent in the 2018/19 budget year from 30.4 percent in 2017/18. The consultation has also forecasts the external debt shall drop slightly in the current budget year at stood at 28 percent but will grow in the coming years.
Moreover the domestic debt will significantly decrease in the coming years, according to the statement of IMF. The IMF Article IV Consultation indicated that the domestic debt has dropped to 28.6 percent and will be at 25.4 percent for this year. For the coming four years the domestic debt will be at 22.6, 19.1, 16.6 and 15.5 percentages respectively, according to the IMF forecasts.
The consultation also added that in 2018/19, real gross domestic product (GDP) is estimated to grow by 9 percent, driven by manufacturing and services. “However, performance of goods exports remained weak and foreign exchange shortages persist,” it added.
The statement forecasted that the macroeconomic policy measures envisaged under the Homegrown Economic Reform Plan to address external imbalances, debt vulnerabilities, and inflation are expected to contribute to a slower growth in real GDP of 6.2 percent in 2019/20.
According to IMF the country’s gross official reserves stood at USD 3.4 billion in the past budget year that is equal to 1.8 months of imports of goods and nonfactor services of the following year. For the current year the official reserves is expected to grown to USD 4 billion and will cover two months of imports of goods and services.
Regarding the growth of reserve the statement stated that it is due to higher external financing flows, including from the IMF.
The IMF forecasts that the country’s official reserve will achieve double digit by 2024 for the first time and will stand at USD 11.2 billion which will be equal to 4.3 months import.
According to the IMF document, the government revenue has dropped to 11.5 percent of the GDP in last year but expected to cope up slightly and will stand at 11.7 percent for this year and 13 percent in the coming year.
At the same time public investment shows reduction and will continue in its lower rate in the coming year. International partners including the IMF recommended that the government should improve the private sector activity.
According to the IMF Consultation the public investment was 11 percent in last budget year that was 12.6 percent in the 2017/18 budget year. The Consultation forecasts that it will stand at 10 percent for this year. However the private investment has registered significant increment and stood at 24.2 percent of the GDP for last year from 21.6 percent of a year ago.
The gross domestic saving reduced to 22.3 percent in last year from 24.1 percent of the GDP a year ago, is expected to expand to over 25 percent in this budget year and will continue its growth for the coming years.
The broad money also reduced to 19.7 percent in last year from 29.2 percent in the 2017/18 budget year. The IMF forecast indicates that the broad money will reduce to 18 percent for the current year. At the same time the base money has reduced to 15.3 percent for 2018/19 budget year from 19.1 percent a year ago and for the current year the base money will drop to 12.5 percent of the GDP.
IMF also stated in its statement that policies appropriately targeted at containing public investment and debt contributed to a further narrowing of the current account deficit.
Ethiopia’s GDP at current market prices will reach at about 3.4 trillion birr in the current budget year from 2.7 trillion birr last year.
“Over the medium term, macroeconomic and structural reforms announced by the authorities are expected to lead to a reduction in public debt, lower external vulnerabilities, and stronger growth, investment and exports,” IMF added in its latest statement.
It was recalled that after the conclusion of IMF team the annual Article IV Consultation the IMF Executive Board approved USD 2.9 billion on three-year arrangements under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for Ethiopia.