Ethiopia, IMF reach agreement on policy measures

Addis Ababa, February 24, 2021 (FBC) –Ethiopia and IMF have reached a staff-level agreement for the 1st and 2nd reviews of the fund’s program for the nation.

It is to be recalled that the International Monetary Fund (IMF) Executive Board approved a $2.9 billion financing arrangement for Ethiopia in December 2019.

The agreement came following a virtual discussion held between Ethiopian authorities and a staff team from the IMF led by Sonali Jain-Chandra, Deputy Division Chief in the IMF’s Asia and Pacific Department.

From the Ethiopian side, Minister of Finance, Ahmed Shide, Governor of the National Bank of Ethiopia, Dr. Yinager Dessie, State Minister of Finance, Dr. Eyob Tekalign, and other government officials and representatives of the private sector took part in the discussion.

In a statement issued at the conclusion of the mission, Jain-Chandra said “The Ethiopian authorities and IMF team have reached a staff-level agreement on policy measures for the completion of the first and second reviews under the ECF-EFF arrangements.”

The wide-ranging policy responses taken by Ethiopia have mitigated some of the impact of the COVID-19 pandemic while supporting macroeconomic stability, the statement said.

The fiscal response included an increase in expenditures and some tax policy measures to address the health crisis, social needs and support the economy.

The injection of liquidity by the central bank provided needed support to the banking system and firms that were adversely affected. The economic impact of the pandemic was felt late in FY2019/20, resulting in relatively robust growth of 6.1% but with the effects continuing in FY2020/21.

Ethiopia’s performance under the ECF-EFF program in the 2019/20 fiscal year has been strong, with continued commitment toward achieving the medium-term macroeconomic objectives, the statement said.

The discussions for the first and second program reviews focused on balancing the need to address on-going challenges created by the pandemic and domestic security challenges while ensuring that policies lay the foundation for strong and inclusive growth.

Ethiopia’s economic growth is projected to be 2% in 2020/21 due to the lingering impact of the pandemic, and is expected to rebound to 8.7% in 2021/22, consistent with a global recovery.

According to the statement, inflation has decreased since its peak of 23% in April 2020 but remains high at just over 19%, driven largely by persistently high food prices.

The growth of reserve money is projected to return to a path consistent with reducing inflation to the central bank’s single digit objective, the statement said, adding financial sector reforms have progressed, with the development of a treasury bill market reducing the need for monetary financing of the budget.

IMF commended the Homegrown Economic Reform Program being implemented by the Government of Ethiopia to boost the role of the private sector in the economy.

It also hailed the adoption of the new commercial code and alternative dispute settlement proclamation, stating that the move will facilitate private investment.

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