International Monetary Fund. Office of Budget and Planning
On April 27, 2020, the Executive Board of the International Monetary Fund (IMF) approved the IMF’s administrative and capital budgets for financial year (FY) 2021, beginning May 1, 2020, and took note of indicative budgets for FY 2022–23.
This paper focuses on The Federal Democratic Republic of Ethiopia’s Requests for Purchasing Under the Rapid Financing Instrument (RFI), Debt Relief Under the Catastrophe Containment and Relief Trust, Rephasing of Access Under the Three-Year Arrangements Under the Extended Credit Facility and the Extended Fund Facility, and Reduction of Access Under the Extended Fund Facility Arrangement. Ethiopia is facing a pronounced economic slowdown and an urgent balance of payments need owing to the coronavirus disease 2019 (COVID-19) pandemic. The authorities have taken strong actions to contain the health impact by implementing a mandatory 14-day quarantine for travelers entering the country, improving testing and containment capacity, strengthening epidemic response coordination and adopting a state of emergency to limit movement and gatherings and facilitate social distancing. Ethiopia showed good progress under the extended arrangements with the IMF, which aim to address external vulnerabilities and transition to a private sector-led growth model. The authorities remain committed to the reform program. The IMF staff supports the authorities’ plan to accommodate COVID-related fiscal measures, and to resume the fiscal adjustment when the crisis subsides. In order to contain the upward pressure on public debt, the authorities should consider further tightening the spending envelope for state-owned enterprises not directly engaged in the COVID-19 emergency response.
This paper presents 2019 Article IV Consultation with the Republic of Ethiopia and its Requests for Three-Year Arrangement Under the Extended Credit Facility and an Arrangement Under the Extended Fund Facility. Ethiopia has enjoyed strong growth for over a decade, which has reduced poverty and raised living standards. However, the public investment-driven growth model has reached its limits. The authorities have announced a Homegrown Economic Reform Plan, consisting of a mix of macroeconomic, structural and sectoral policies, to address vulnerabilities and tackle structural bottlenecks inhibiting private sector activity. Over the medium term, macroeconomic and structural reforms announced by the authorities are expected to lead to a reduction in public debt, lower external vulnerabilities, and stronger growth, investment and exports. The risks to the outlook are tilted to the downside. Domestic opposition to reforms ahead of the upcoming elections could increase investor uncertainty and weigh on investment and growth. External risks stem from rising protectionism and weaker than expected global growth as well as climate-related shocks.
International Monetary Fund. Middle East and Central Asia Dept.
This 2019 Article IV Consultation with Djibouti discusses that large-scale infrastructure investments and a rapid expansion of trade and logistics activities have fueled strong growth in recent years. The government has in recent years implemented large-scale investments to develop transport and logistics infrastructures. Combined with business climate reforms, this development strategy has fueled strong growth and positioned Djibouti well to become a regional trade and logistics hub. The IMF staff’s baseline projections assume a significant reduction in debt financed public investment. Growth is nonetheless projected to remain strong, driven by the rapid expansion in Ethiopia’s trade and a pickup in private investment. Fostering higher and inclusive growth and bolstering the external position require addressing impediments to private sector investment and improving external competitiveness. Critical reforms include further enhancing the business environment, promoting competition, and improving the governance and efficiency of public enterprises to lower factor costs, particularly in the telecommunications and electricity sectors.
Antonio Fatás, Mr. Atish R. Ghosh, Ugo Panizza, and Mr. Andrea F Presbitero
Governments issue debt for good and bad reasons. While the good reasons—intertemporal tax-smoothing, fiscal stimulus, and asset management—can explain some of the increases in public debt in recent years, they cannot account for all of the observed changes. Bad reasons for borrowing are driven by political failures associated with intergenerational transfers, strategic manipulation, and common pool problems. These political failures are a major cause of overborrowing though budgetary institutions and fiscal rules can play a role in mitigating governments’ tendencies to overborrow. While it is difficult to establish a clear causal link from high public debt to low output growth, it is likely that some countries pay a price—in terms of lower growth and greater output volatility—for excessive debt accumulation.