The Federal Democratic Republic of Ethiopia: 2010 Article IV Consultation and First Review of the Arrangement Under the Exogenous Shocks Facility Informational Annex
Author: International Monetary Fund
Publication Date:
23 Jun 2010
eISBN:
9781455204175
Language:
English
Keywords:
ISCR; CR; ESF arrangement; ESF review; consumer price inflation; SDR equivalent; GDP estimate; X. exchange rate arrangement; NBE Law; SDR equivalent in million; Balance of payments statistics; Bank supervision; Exchange rate arrangements; Debt relief; Government finance statistics; budgetary funds
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The Ethiopian authorities have been generally responsive to the policy recommendations from the 2008 Article IV Consultation. To help rebuild international reserves and improve external competitiveness, the authorities made another exchange rate adjustment (a 5 percent devaluation) on January 31, 2010. The overall fiscal balance during July-December 2009 indicates stronger revenue collection than programmed. Ethiopia has been resilient to the ongoing global crisis because remittances have remained stable in 2009/10, FDI has risen 20 percent, and imports are lower.

Abstract

The Ethiopian authorities have been generally responsive to the policy recommendations from the 2008 Article IV Consultation. To help rebuild international reserves and improve external competitiveness, the authorities made another exchange rate adjustment (a 5 percent devaluation) on January 31, 2010. The overall fiscal balance during July-December 2009 indicates stronger revenue collection than programmed. Ethiopia has been resilient to the ongoing global crisis because remittances have remained stable in 2009/10, FDI has risen 20 percent, and imports are lower.

Annex I The Federal Democratic Republic of Ethiopia Relations with the Fund

(as of April 30, 2010)

I. Membership Status: Joined: December 27, 1945; Article XIV

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements:

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Formerly PRGF.

VI. Projected Payments to Fund

(SDR Million; based on existing use of resources and present holdings of SDRs):

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VII. Implementation of HIPC Initiative:

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Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts can not be added.

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI):

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The MDRI provides 100 percent debt relief to eligible member countries that qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

IX. Safeguards Assessment

An update safeguards assessment of the National Bank of Ethiopia (NBE) was completed in December 2009 in connection with Ethiopia’s ESF-RAC approved on January 23, 2009. The assessment found that, since the previous assessment in 2001, the NBE has implemented some improvements to the safeguards framework but that several initiatives were a work-in-progress and substantial gaps remained. Financial transparency has improved through the publication of independently audited financial statements, and internal audit capacity has been strengthened. In response to the assessment’s recommendations, action has been taken to commence Audit Committee (AC) oversight, and introduce controls and independent reviews over program data reporting to the Fund. The authorities are also in the process of addressing remaining safeguards issues relating to enhancing AC oversight of the external audit mechanism, further strengthening of reserve management capacity, and introducing bank-wide risk management practices. Going forward, the NBE Law will need to be strengthened with regard to independence of the central bank and the potential scope for unlimited financing of the government.

X. Exchange Rate Arrangement

The de facto exchange rate regime is classified as a crawl-like arrangement, in light of the recent market developments. The authorities describe their exchange rate regime as a managed float with no predetermined path for the exchange rate. The pace of the depreciation, however, has been stable. Furthermore, the NBE supplies foreign exchange to the market based on plans established at the beginning of each fiscal year that took into account estimates of likely supply and demand. The transaction-weighted average interbank market exchange rate on April 29, 2010, was Br 13.4510 = US$1.

Ethiopia currently maintains four restrictions on the payments and transfers for current international transactions, which relate to (a) the tax certification requirement for repatriation of dividend and other investment income; (b) restrictions on repayment of legal external loans and supplies and foreign partner credits; (c) rules for issuance of import permits by commercial banks; and (d) the requirement to provide a clearance certificate from NBE to obtain import permits. These restrictions are inconsistent with Article VIII, Section 2(a), of the IMF’s Articles of Agreement and remain unapproved.

The staff is assessing whether a general finance and economic cooperation agreement signed between the government of Ethiopia and China in 2006 gives rise to exchange restrictions under Article VIII.

XI. Article IV Consultation

The Executive Board concluded the last Article IV consultation on July 14, 2008 (SM/08/208). Ethiopia will follow Article IV consultation cycles for program countries.

XII. Technical Assistance (2005–present)

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XIII. Resident Representative

The IMF has had a resident representative office in Addis Ababa since 1993. The current Resident Representative, Mr. Sukhwinder Singh, took up the post in January 2009.

Annex II The Federal Democratic Republic of Ethiopia Joint Managerial Action Plan May 2010-April 2011

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Annex III The Federal Democratic Republic of Ethiopia Statistical Issues

(as of May 2010)

I. Assessment of Data Adequacy for Surveillance

General: Data provided to the Fund are adequate for surveillance and program monitoring purposes. Despite recent progress, there are some shortcomings in real, fiscal, and balance of payments statistics.

National Accounts: Shortcomings in the source data and compilation practices affect the accuracy and reliability of the statistics. The GDP estimates are heavily dependent on benchmark data that are outdated and therefore, may not reflect current economic activity. Further, the techniques used to compile the estimates for construction, distribution, and some other services activities do not conform to international best practice. While some progress has been made in compiling estimates of GDP by final expenditure, there remain substantial shortcomings, particularly in the estimation of private consumption and fixed capital formation. The statistical discrepancies between the estimates by expenditure categories and output remain large.

Government finance statistics: Despite recent improvements, general government fiscal statistics continue to be affected by shortcomings. Timely data on the consolidated operations of local governments is unavailable. Significant discrepancies between data on the domestic and foreign financing of the budget deficit and the monetary accounts continue to complicate assessment of fiscal developments. Ensuring the integrity of consolidated budget reporting in a timely fashion will be a continuing task.

Monetary statistics: The monetary statistics are broadly adequate for analytical purposes, although there is a need for the NBE to resume data submissions based on the SRF and IMD framework. For policy purposes, however, ensuring data collection and reporting in a timely manner continues to be critical.

Balance of payments: Balance of payments data still require improvements on coverage, valuation, timing, and classification of transactions. These include long delays in the collection of trade and tourist arrival data and poor data on capital flows.

II. Data Standards and Quality

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Annex IV Ethiopia: Table of Common Indicators Required for Surveillance

(as of May 20, 2010)

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Any reserve assets that are pledged of otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially determined, including discount rates, money market rates, and rates on treasury bills, notes, and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

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Cover IMF Staff Country Reports
Ethiopia: 2010 Article IV Consultation and First Review of the Arrangement under the Exogenous Shocks Facility: Staff Report; Staff Supplements; and Press Release on the Executive Board Discussion
Author: International Monetary Fund
Volume/Issue:
Volume 2010: Issue 175
Publisher:
International Monetary Fund
ISBN:
9781455204175
ISSN:
1934-7685
Pages:
76
DOI:
https://doi.org/10.5089/9781455204175.002