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The International Monetary Fund (IMF) forecasts that Ethiopia’s economy will only grow by 2 percent for the current fiscal year that began on July 8, 2020.
“Looking ahead, economic growth is projected to be 2 percent in 2020/21 due to the continuing impact of the pandemic, and is expected to rebound to 8.7 percent in 2021/22, in line with a recovery. global, “the IMF said today in its statement.
“Inflation has decreased from its peak of 23 percent in April 2020, but it remains high at just over 19 percent, driven in large part by persistently high food prices. Risks to the economic outlook are tilted to the downside, amid uncertainty about the magnitude and duration of the pandemic, as well as other risks, including political uncertainty and the locust infestation experienced in some parts of the country. The internal security situation has created humanitarian and reconstruction needs that require policy adjustment and the support of the international community, ”he said.
The IMF made the statement after its team concluded talks with the Ethiopian authorities. “A modest fiscal expansion is anticipated this fiscal year to accommodate humanitarian assistance and reconstruction needs. At the same time, the authorities are now moving to improve domestic revenue mobilization. In terms of social spending, indexing benefits for the rural and urban poor to headline inflation is expected to improve the adequacy of benefits from these programs. Greater prudence in SOEs lending, combined with reforms to improve governance and oversight of SOEs and the adoption of the plan to address inherited SOEs debt, will support the sustainability of public finances, ”he said. the IMF.
“Reserve money growth is projected to return to a path consistent with reducing inflation to the central bank’s single-digit target. Financial sector reforms have advanced, with the development of a market for Treasury bills that reduces the need for monetary financing of the budget. The firm implementation of the comprehensive roadmaps on the reform of the monetary policy framework and exchange rate regulations should lay the foundation for achieving low and stable inflation, supporting a smooth transition to an exchange rate that balances the market throughout of time and help address currency shortages. The measures to address the weakness of the balance sheets and improve the risk management of the two state banks, and the measures to strengthen banking supervision will contribute to safeguarding financial stability ”.
“In accordance with their National Economic Reform Program, the authorities are implementing reforms to boost the role of the private sector in the economy. The adoption of the new Commercial Code and the Proclamation of Alternative Dispute Resolution will facilitate private investment ”.
During the virtual mission, the IMF team met with the Minister of Finance, Ahmed Shide, the Governor of the National Bank of Ethiopia, Dr. Yinager Dessie, the Minister of State for Finance, Dr. Eyob Tekalign; Lieutenant Governor Fikadu Huriso, other government officials, representatives of the private sector, including banks, and the community of development partners. The team extends its appreciation to the authorities for their cooperation and productive discussions.
A team of IMF staff, led by Sonali Jain-Chandra, conducted a virtual mission with the Ethiopian authorities from January 20-22 and February 4-18, 2021. “The Ethiopian authorities and the IMF team reached a staff-level agreement on policy measures to complete the first and second reviews under the ECF-EFF agreements. This agreement is subject to the approval of the IMF Executive Board and the receipt of the necessary financial guarantees from international partners.
“The COVID-19 pandemic continues to create significant health, social and economic challenges in Ethiopia. The authorities’ wide-ranging policy responses have mitigated part of the impact of the crisis while supporting macroeconomic stability. The fiscal response included increased spending and some fiscal policy measures to address the health crisis, social needs, and support the economy. The injection of liquidity by the central bank provided the necessary support to the banking system and the companies that were negatively affected. The economic impact of the pandemic was felt in late fiscal 2019/20, resulting in relatively robust growth of 6.1 percent, but the effects continued into fiscal 2020/21, “the IMF said.
