Abstract
Ethiopia’s request for disbursement under the rapid-access component of the Exogenous Shocks Facility is examined. The authorities have embarked upon a tightening of monetary and fiscal policies to facilitate necessary rebuilding of foreign exchange reserves. Wheat has been imported on an emergency basis to dampen domestic inflation expectations and alleviate the impact of high food prices on vulnerable groups. Steep increases in international prices for key imports have exacerbated strains on the Ethiopian economy and pushed foreign exchange reserves to critically low levels.
January 23, 2009
1. The information below has become available since the staff report was issued. It does not alter the thrust of the staff appraisal.
2. Inflation eased further in December 2008. Food prices declined by some 8.9 percent compared with November 2008 helped by a good harvest and the distribution of the imported wheat at cost. With nonfood prices broadly unchanged from their November level, 12-month inflation declined sharply to 39.2 percent in December 2008 from 49.4 percent in November 2008. The latest data are consistent with staff’s projection that 12-month inflation will fall to below 20 percent by mid-2009.
3. The authorities have taken the following measures, in line with their policy commitments laid out in the staff report:
In the context of declining inflation, the official exchange rate against the U.S. dollar depreciated by 5 percent on January 15, 2009. This, together with a similar-size depreciation on January 2, brings the cumulative depreciation since end-2008 to over 10 percent.
The inter-agency monitoring committee on public enterprise borrowing, comprising staff of the Ministry of Finance and Economic Development and the National Bank of Ethiopia, has been established. The committee has distributed a data request to concerned public enterprises. The committee will discuss the information collected and its findings will be reported on a monthly basis to high-level macroeconomic policy makers.
The Oil Stabilization Fund continued to accumulate a surplus in December 2008. Its debt outstanding has been reduced by 728 billion birr (0.2 percent of full-year GDP) since October 2008.