Statement by an IMF Staff Mission on the 2013 Article IV Consultation with Ethiopia

Press Release No. 13/247

July 4, 2013

An International Monetary Fund (IMF) mission visited Addis Ababa June 19-July 3 to conduct discussions for the 2013 Article IV¹ Consultation. The mission met with Prime Minister Hailemariam Desalegn, Minister of Finance and Economic Development Sufian Ahmed, Governor of the National Bank of Ethiopia Teklewold Atnafu, Economic Advisor to the Prime Minister Newai Gebre-ab, other senior officials, as well representatives of the private sector, the international community, and civil society.

At its conclusion, the mission head Mr. S. Kal Wajid issued the following statement:

“The Ethiopian economy continues to experience robust growth and reduction in inflation. For 2012/13, the mission estimates real GDP growth at a robust 7 percent despite a difficult global economic environment and end-year inflation at 6.6 percent. The expansion in economic activity has contributed to poverty reduction and progress toward achieving the Millennium Development Goals. Tight monetary policy and cautious execution of the government budget have contributed to the deceleration of inflation, which also reflects slowdown in food prices. The trade balance has deteriorated but an increase in transfers and loan disbursements from abroad allowed for a small increase in gross international reserves. Sizeable investment spending of public enterprises continues to absorb a large share of domestic financing and constrain credit available to the private sector.

“Going forward, the mission recommends a cautious stance of monetary policy that keeps money growth consistent with preserving the gains on inflation and achieving robust economic growth. Raising nominal interest rates is required to activate the Treasury bill market for more flexible liquidity management and monetary policy implementation. A well functioning Treasury bill market is also a precondition for establishing a market for longer term government securities. There is scope for improving the functioning of the foreign exchange market. This may entail greater exchange rate flexibility, which is essential to maintain external competiveness and achieve the authorities’ broadly-based growth objectives. The mission supports the National Bank of Ethiopia’s objective of gradually raising foreign exchange reserves to 3 months of imports.

“The financing of the Growth and Transformation Plan should strike a balance between promoting growth and ensuring macroeconomic stability. Careful consideration should be given to the sustainability of the financing. The authorities should seek concessional external financing and avoid extensive substitution of domestic for external financing. The pacing of public investments needs to be adjusted if scaled-up external financing on manageable terms is not forthcoming.

“Ethiopia’s public sector led development strategy has delivered robust growth and rising living standards but is now at cross roads. To sustain growth and employment creation, there is a need to carefully consider the balance between public and private sectors in the economy. A vibrant private sector is essential to attain middle income status. Therefore, it would be important to foster competition in areas where public enterprises enjoy monopolies, and gradually withdrawing from sectors where they crowd out the private sector.

“The IMF Executive Board is expected to complete the 2013 Article IV consultation in September 2013.”

SOURCE, IMF