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(MENAFN – African Press Organization) WASHINGTON D.C., United States of America, May 1, 2020 / APO Group / –
Ethiopia faces a pronounced economic slowdown and an urgent need for balance of payments due to the COVID-19 pandemic; To meet this urgent need, the IMF approved emergency assistance of $ 411 million for Ethiopia under the Rapid Financing Instrument. The country will also benefit from IMF debt service relief under the Containment and Disaster Relief Trust; Authorities have taken swift and decisive measures to contain the impact of COVID-19 by strengthening the health system, adopting a state of emergency to limit the spread of the virus, and implementing measures to support the economy.
The Executive Board of the International Monetary Fund (IMF) today approved a purchase under the Rapid Financing Instrument (RFI) equivalent to SDR 300.7 million (about US $ 411 million, 100 percent of the quota) to help Ethiopia meet the urgent needs for balance of payments derived from the COVID-19 pandemic. The Executive Board also approved a reorganization of disbursements under the Extended Credit Mechanism (ECF) and Extended Financing Mechanism (EFF) agreements that have been supporting Ethiopia’s economic reform program since December 2019, and a reduced access under the EFF agreement, to maximize funding support under the RFI.
In addition, Ethiopia will benefit from the IMF Executive Board decision of April 13, 2020 to provide debt service relief to the poorest and most vulnerable countries that are eligible for assistance under the Containment and Disaster Relief Trust. (CCRT). As a result, the Board today approved Ethiopia’s request for relief under the CCRT for debt service to fall due to the IMF through October 13, 2020 of approximately $ 12 million. This relief could be extended until April 13, 2022, subject to the availability of resources under the CCRT.
The COVID-19 pandemic has created serious health risks and has weighed heavily on the Ethiopian economy. If the pandemic is not contained, it will put severe pressure on the health system with devastating social consequences. On the economic front, a drop in export demand, combined with domestic containment measures, will slow growth and weaken external and fiscal accounts.
Authorities have taken firm measures to contain the impact on health by implementing a mandatory 14-day quarantine for travelers entering the country, improving testing and containment capacity, strengthening coordination of the epidemic response and adopting a state emergency to limit movement and meetings and facilitate social distancing. . Implementing expenditures to strengthen the health system and address food security challenges are welcome and will help contain the spread of the virus and support the poor and most vulnerable.
The IMF continues to closely monitor the situation in Ethiopia and is ready to provide policy advice and financial support as needed.
Following the Executive Board discussion on Ethiopia, Mr. Tao Zhang, Deputy Director General and President, issued the following statement:
‘Ethiopia made good progress under the expanded agreements with the Fund, which aim is to address external vulnerabilities and the transition to a growth model led by the private sector. The authorities remain committed to the reform program. However, the COVID-19 pandemic has had a significant adverse impact on the economy and has created urgent fiscal and balance of payments needs. Authorities have moved decisively to stem the spread of the virus and manage the economic consequences of the global recession and necessary health-related measures.
‘A temporary widening of the budget deficit is appropriate. The immediate priority is to increase spending on health care and provide emergency assistance, including food assistance. The authorities are committed to full transparency in spending for the emergency response and aim to conduct an ex post audit of crisis-related spending once the crisis has subsided. Fiscal consolidation should resume after the crisis, with a focus on strengthening debt sustainability and mobilizing internal revenue.
‘The National Bank of Ethiopia (NBE) has provided liquidity to banks to maintain financial stability. Once the crisis subsides, monetary policy will need to be tightened significantly to achieve the single-digit inflation target. Great efforts are needed to address the real overvaluation of the exchange rate, allowing the exchange rate to act as a buffer.
Financing emergency support under the Rapid Financing Instrument and debt relief under the Containment and Disaster Relief Trust would help address balance of payments pressures and create fiscal space for essential expenses related to the pandemic. Participation in the G20 debt relief initiative could provide additional resources to respond to the pandemic.
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