The International Monetary Fund (IMF) staff team on Sep 26, 2017 released the preliminary findings and recommendations of the 2017 Article IV visit to Ethiopia. The staff led by Julio Escolano, Advisor of the International Monetary Fund (IMF) for African Department, revealed the findings after visiting the country from September 13 to 26, 2017.
According to the findings, the Ethiopian economy showed strong resilience in 2016/17 amid continued weak global prices for Ethiopia’s key exports and re-emergence of drought conditions in parts of the country.
Real gross domestic product (GDP) is estimated to have increased by 9 percent in 2016/17, it said, adding government interventions to mitigate the social impact of the drought, in collaboration with development partners, were timely and effective, thus limiting its human cost.
Prudent budget execution led to a lower-than-planned fiscal deficit, estimated at 2.5 percent of GDP. Determined actions by the authorities to contain external imbalances led to a narrowing of the current account deficit, and restrained debt accumulation. Nevertheless, exports continued to stagnate due to weak global commodity markets and delays in completion of key related projects, it said.
The report further indicated that medium-term growth prospects are favorable, supported by strong private investment, completion of key supporting infrastructure projects, and rising productivity as export-oriented industries take root.
In the short term, however, the current account deficit remains high, and indebtedness and associated risks have increased. Thus, until past investments in infrastructure and logistics pay off and exports take off, macroeconomic and financial policies should aim at reducing external imbalances and liabilities, it noted.
To achieve this rebalancing, the appropriately tight budgetary stance announced by the government should be combined with additional restraint in undertaking public investment projects, particularly those with a high borrowing component. Social needs remain large, and the staff team supports the authorities’ intention to protect pro-poor spending programs, the report said.
The ongoing efforts to strengthen domestic revenue collection and governance of public enterprises need to be stepped-up to mobilize domestic resources and encourage their effective use, it recommended.
According to the report, more extensive use of public-private partnerships, private concessions, and privatization proceeds, in line with the authorities’ policies, will safeguard public resources while helping private sector development. To complement the restrictive fiscal stance, monetary policy should also be tightened.
The staff team welcomed the progress in financial development and inclusion, as evidenced by the significant increase in the number of bank branches and deposits.
The current positive investor sentiment towards Ethiopia could be enhanced by reforms to improve the business climate. A more flexible exchange rate would help competitiveness. Improving economic statistics would support policymaking and investor confidence, the report said.
During it visit, the team held substantive technical and policy discussions with Governor of the National Bank of Ethiopia (NBE) Teklewold Atnafu and Minister of Finance and Economic Cooperation, Dr Abraham Tekeste.
The staff also had the opportunity to meet and discuss with ministries and government agencies, representatives of public enterprises, the private sector and development partners. The team also presented its key findings and recommendations to Hailemariam Desalegn, Prime Minister of Ethiopia.
The Executive Board of the IMF is expected to discuss the staff report for Ethiopia in November 2017.
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