On September 26, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Ethiopia.
Ethiopia’s macroeconomic outturn during the past year 2015/16 has been adversely affected by a severe drought and the weak global environment. As a result, output growth is estimated to have slowed down in 2015/16 to 6.5 percent. The slowdown was mitigated by effective and timely policy responses to the drought, and buoyant industrial and services sectors. Stability-oriented macroeconomic policies, including drought-related food imports, curbed inflationary pressures, with overall inflation receding to 6 percent in July 2016. A supplementary budget helped address the social costs of the drought, while keeping the general government deficit at 3 percent of GDP. However, the external current account deficit, estimated at 10.7 percent of GDP, remained wide. Export revenue stagnated due to weak international commodity prices, despite increases in export volumes and diversification to new export markets. Savings on fuel imports were more than offset by increased drought-related food imports and other imports. Remittances and FDI posted strong growth, helping to limit the deterioration of the external position. The foreign reserve buffer is less than 2 months of import coverage. The 2015/16 foreign borrowing requirement of the non-financial public sector is estimated at 5 percent of GDP, a significant reduction compared to the recent past. Public and publicly-guaranteed debt is estimated to have been 54.2 percent of GDP in June 2016, of which 30.2 percent of GDP corresponds to external debt.
Over the medium-term, growth is projected to recover to within the 7.3-7.5 percent range, reflecting the growth-oriented reforms envisaged in the recently adopted second Growth and Transformation Plan (GTP II). Public investment is projected to moderate, while private investment is projected to increase gradually, aided by better access to credit and anticipated improvements in competitiveness. Inflation is projected to remain at around 8 percent, consistent with the authorities’ price stability objective, supported by supply expansion and the monetary policy stance. The general government deficit is envisaged to hover at around 3 percent of GDP, with expenditure policies focused on capital and poverty-reducing programs. Export revenue is forecast to expand throughout the medium-term, underpinned by more stable commodity prices, competitiveness gains on account of key ongoing projects in logistic infrastructure, and greenfield FDI. Import growth is projected to remain robust and the current account deficit is projected to remain high, declining gradually over time.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.