Abstract
Ethiopia has successfully implemented policies to reduce inflation and rebuild external reserves. Fiscal policy aims to continue the strong focus on physical and social infrastructure investment while raising the revenue effort. The recent reframing of monetary policy to adopt a reserve money nominal anchor holds out the prospect for the end of financial repression. While the External Shocks Facility-supported program has achieved its objectives of macroeconomic stabilization and a rebuilding of external reserves, much remains to be done to sustain and accelerate growth.
Annex I: The Federal Democratic Republic of Ethiopia Relations with the Fund
(as of September 30, 2010)
I. Membership Status: Joined: December 27, 1945; Article XIV
II. General Resources Account:
| SDR Million | %Quota | |
|---|---|---|
| Quota | 133.70 | 100.00 |
| Fund holdings of currency | 126.20 | 94.39 |
| Reserve Tranche Position | 7.51 | 5.62 |
| Lending to the Fund | ||
| Holdings Exchange Rate |
| SDR Million | %Quota | |
|---|---|---|
| Quota | 133.70 | 100.00 |
| Fund holdings of currency | 126.20 | 94.39 |
| Reserve Tranche Position | 7.51 | 5.62 |
| Lending to the Fund | ||
| Holdings Exchange Rate |
III. SDR Department:
| SDR Million | %Allocation | |
|---|---|---|
| Net cumulative allocation | 127.93 | 100.00 |
| Holdings | 57.36 | 44.84 |
| SDR Million | %Allocation | |
|---|---|---|
| Net cumulative allocation | 127.93 | 100.00 |
| Holdings | 57.36 | 44.84 |
IV. Outstanding Purchases and Loans:
| SDR Million | %Quota | |
|---|---|---|
| ESF Arrangement | 113.65 | 85.00 |
| ESF RAC Loan | 33.43 | 25.00 |
| SDR Million | %Quota | |
|---|---|---|
| ESF Arrangement | 113.65 | 85.00 |
| ESF RAC Loan | 33.43 | 25.00 |
V. Latest Financial Arrangements:
Formerly PRGF.
VI. Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | |
| Principal | 3.34 | ||||
| Charges/Interest | 0.05 | 0.21 | 0.58 | 0.58 | 0.58 |
| Total | 0.05 | 0.21 | 0.58 | 0.58 | 3.92 |
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2010 | 2011 | 2012 | 2013 | 2014 | |
| Principal | 3.34 | ||||
| Charges/Interest | 0.05 | 0.21 | 0.58 | 0.58 | 0.58 |
| Total | 0.05 | 0.21 | 0.58 | 0.58 | 3.92 |
VII. Implementation of HIPC Initiative:
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.
| I. | Commitment of HIPC assistance | Enhanced Framework | |||
| Decision point date | November 2001 | ||||
| Assistance committed | |||||
| by all creditors (US$ Million)1/ | 1,982.20 | ||||
| of which: IMF assistance (US$ million) | 60.85 | ||||
| (SDR equivalent in millions) | 45.12 | ||||
| Completion point date | April 2004 | ||||
| II. | Disbursement of IMF assistance (SDR Million) | ||||
| Assistance disbursed to the member | 45.12 | ||||
| Interim assistance | 10.28 | ||||
| Completion point balance | 34.84 | ||||
| Additional disbursement of interest income2/ | 1.54 | ||||
| Total disbursements | 46.66 | ||||
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.
| I. | Commitment of HIPC assistance | Enhanced Framework | |||
| Decision point date | November 2001 | ||||
| Assistance committed | |||||
| by all creditors (US$ Million)1/ | 1,982.20 | ||||
| of which: IMF assistance (US$ million) | 60.85 | ||||
| (SDR equivalent in millions) | 45.12 | ||||
| Completion point date | April 2004 | ||||
| II. | Disbursement of IMF assistance (SDR Million) | ||||
| Assistance disbursed to the member | 45.12 | ||||
| Interim assistance | 10.28 | ||||
| Completion point balance | 34.84 | ||||
| Additional disbursement of interest income2/ | 1.54 | ||||
| Total disbursements | 46.66 | ||||
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):
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.
| I. | MDRI-eligible debt (SDR Million)1/ | 112.07 | |||||
| Financed by: MDRI Trust | 79.66 | ||||||
| Remaining HIPC resources | 32.41 | ||||||
| II. | Debt Relief by Facility (SDR Million) | ||||||
| Eligible Debt | |||||||
| Delivery Date | GRA | PRGT | Total1 | ||||
| January 2006 | N/A | 112.07 | 112.07 | ||||
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.
| I. | MDRI-eligible debt (SDR Million)1/ | 112.07 | |||||
| Financed by: MDRI Trust | 79.66 | ||||||
| Remaining HIPC resources | 32.41 | ||||||
| II. | Debt Relief by Facility (SDR Million) | ||||||
| Eligible Debt | |||||||
| Delivery Date | GRA | PRGT | Total1 | ||||
| January 2006 | N/A | 112.07 | 112.07 | ||||
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. The NBE supplies foreign exchange to the market based on plans established at the beginning of each fiscal year that takes into account estimates of likely supply and demand. The transaction-weighted average interbank market exchange rate on September 29, 2010, was Br 16.3868 = 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 continuing to assess 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 June 11, 2010 (IMF Country Report No. 10/175). Ethiopia will follow Article IV consultation cycles for program countries.
XII. Technical Assistance (2005–present)
| Department | Purpose | Time of Delivery |
|---|---|---|
| FAD | Program/performance budgeting | January–February 2005 |
| STA | Balance of payments statistics | January–February 2005 |
| MFD | Bank supervision | June–July 2005 |
| STA | Balance of payments statistics | July 2005 |
| STA | Government finance statistics | August 2005 |
| FAD | Tax administration | September 2005 |
| MCM | Bank supervision | February 2006 |
| MCM | Modernization of payment systems | March 2006 |
| STA | Consumer price data | March 2006 |
| AFE | Program budgeting | April 2006 |
| AFE | Treasury reforms review | April 2006 |
| FAD | Tax policy assessment | May 2006 |
| MCM | Bank supervision | July 2007 |
| MCM | Monetary operations | July 2007 |
| MCM | Payment system | July 2007 |
| AFE | Customs administration | October 2007 |
| FAD | Public expenditure management | December 2007 |
| AFE | Program budgeting | December 2007 |
| AFE | Macro-fiscal | January 2008 |
| AFE | Program budgeting | January 2008 |
| AFE | Banking supervision | February 2008 |
| AFE | Consumer price index | March 2008 |
| MCM | Islamic banking regulation | April 2009 |
| AFE | Banking supervision | June 2009 |
| AFE | Program budgeting chart of accounts | July 2009 |
| FAD | Revenue administration | September 2009 |
| FAD | Program budgeting | November 2009 |
| FAD | Tax policy | December 2009 |
| AFE | Cash management and treasury single account | February 2010 |
| AFE | Price statistics | February 2010 |
| AFE | Risk-based supervision | May 2010 |
| AFE | Medium-Term Expenditure Framework | August 2010 |
| Department | Purpose | Time of Delivery |
|---|---|---|
| FAD | Program/performance budgeting | January–February 2005 |
| STA | Balance of payments statistics | January–February 2005 |
| MFD | Bank supervision | June–July 2005 |
| STA | Balance of payments statistics | July 2005 |
| STA | Government finance statistics | August 2005 |
| FAD | Tax administration | September 2005 |
| MCM | Bank supervision | February 2006 |
| MCM | Modernization of payment systems | March 2006 |
| STA | Consumer price data | March 2006 |
| AFE | Program budgeting | April 2006 |
| AFE | Treasury reforms review | April 2006 |
| FAD | Tax policy assessment | May 2006 |
| MCM | Bank supervision | July 2007 |
| MCM | Monetary operations | July 2007 |
| MCM | Payment system | July 2007 |
| AFE | Customs administration | October 2007 |
| FAD | Public expenditure management | December 2007 |
| AFE | Program budgeting | December 2007 |
| AFE | Macro-fiscal | January 2008 |
| AFE | Program budgeting | January 2008 |
| AFE | Banking supervision | February 2008 |
| AFE | Consumer price index | March 2008 |
| MCM | Islamic banking regulation | April 2009 |
| AFE | Banking supervision | June 2009 |
| AFE | Program budgeting chart of accounts | July 2009 |
| FAD | Revenue administration | September 2009 |
| FAD | Program budgeting | November 2009 |
| FAD | Tax policy | December 2009 |
| AFE | Cash management and treasury single account | February 2010 |
| AFE | Price statistics | February 2010 |
| AFE | Risk-based supervision | May 2010 |
| AFE | Medium-Term Expenditure Framework | August 2010 |
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 Management Action Plan July 2010–June 2011
| Title | Products | Provisional and actual timing of missions | Expected and actual delivery date | |
|---|---|---|---|---|
| A. Mutual information on relevant work programs | ||||
| The World Bank work program in the next 12 months | Economic policy analysis and advice | |||
| • | Annual Public Finance Review-2011 | July 2010–June 2011 | Q1 2011 | |
| • | Policy dialogue on economic reform issues | July 2010–June 2011 | Q2 2011 | |
| • | Regional Growth Report (Addis Ababa) | July–December 2010 | Q2 2010 | |
| • | Trade in Services Report | July 2010–June 2011 | Q2 2011 | |
| Technical Assistance | ||||
| • | Financial sector capacity building project | July 2010–June 2011 | June 2010 | |
| • | Strengthen the capacity of public (PSCAP-2) | July 2010–June 2011 | – | |
| • | Support for new 5-year development plan | July 2010–June 2011 | Q1 2011 | |
| The Fund work program in the next 12 months | Macroeconomic policy analysis and advice IMF Program | |||
| • | The second review of the High Access Component Exogenous Shocks Facility | September 2010 | November 2010 | |
| • | Article IV consultation | March 2011 | June 2011 | |
| Technical assistance | ||||
| • | Revenue administration | December 2010 | ||
| • | Public financial management | May 2010–April 2011 | ||
| • | Statistical capacity (national accounts, CPI) | May 2010–April 2011 | ||
| B. Requests for work program inputs | ||||
| Fund request to Bank | • | Periodic update on progress on financial sector capacity building project. | Ongoing | |
| • | Macroeconomic and financial data to be shared regularly. | |||
| Bank request to Fund | • | Periodic update on all TA activities. | Ongoing | |
| • | Macroeconomic and financial data to be shared regularly. | |||
| C. Agreement on joint products and missions | ||||
| Joint products in the next 12 months | Debt sustainability analysis | June 2011 | ||
| Title | Products | Provisional and actual timing of missions | Expected and actual delivery date | |
|---|---|---|---|---|
| A. Mutual information on relevant work programs | ||||
| The World Bank work program in the next 12 months | Economic policy analysis and advice | |||
| • | Annual Public Finance Review-2011 | July 2010–June 2011 | Q1 2011 | |
| • | Policy dialogue on economic reform issues | July 2010–June 2011 | Q2 2011 | |
| • | Regional Growth Report (Addis Ababa) | July–December 2010 | Q2 2010 | |
| • | Trade in Services Report | July 2010–June 2011 | Q2 2011 | |
| Technical Assistance | ||||
| • | Financial sector capacity building project | July 2010–June 2011 | June 2010 | |
| • | Strengthen the capacity of public (PSCAP-2) | July 2010–June 2011 | – | |
| • | Support for new 5-year development plan | July 2010–June 2011 | Q1 2011 | |
| The Fund work program in the next 12 months | Macroeconomic policy analysis and advice IMF Program | |||
| • | The second review of the High Access Component Exogenous Shocks Facility | September 2010 | November 2010 | |
| • | Article IV consultation | March 2011 | June 2011 | |
| Technical assistance | ||||
| • | Revenue administration | December 2010 | ||
| • | Public financial management | May 2010–April 2011 | ||
| • | Statistical capacity (national accounts, CPI) | May 2010–April 2011 | ||
| B. Requests for work program inputs | ||||
| Fund request to Bank | • | Periodic update on progress on financial sector capacity building project. | Ongoing | |
| • | Macroeconomic and financial data to be shared regularly. | |||
| Bank request to Fund | • | Periodic update on all TA activities. | Ongoing | |
| • | Macroeconomic and financial data to be shared regularly. | |||
| C. Agreement on joint products and missions | ||||
| Joint products in the next 12 months | Debt sustainability analysis | June 2011 | ||