IMF Policy Paper: The Federal Democratic Republic Of Ethiopia: Staff Report For The 2017 Article IV Consultation—Informational Annex
Author: International Monetary Fund. African Dept.
Publication Date:
24 Jan 2018
eISBN:
9781484338506
Language:
English
Keywords:
ISCR; CR; center; authority; fiscal policy; current account; resource revenue modeling; SDR equivalent; STA TA report; equivalent in million; External sector statistics; Financial statistics; Exchange rate arrangements
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2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia

Abstract

2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia

Relations With The Fund

(As of October 31, 2017)

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Latest Financial Arrangements:

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Overdue Obligations and Projected Payments to Fund 2

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

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Implementation of Multilateral Debt Relief Initiative (MDRI):

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Implementation of Catastrophe Containment and Relief (CCR): Not Applicable

As of February 4, 2015, the post-Catastrophe Debt Relief Trust has been transformed to the Catastrophe Containment and Relief (CCR) Trust.

Exchange Rate Arrangement

The de-facto exchange rate arrangement is classified as a crawl-like arrangement. The authorities describe their exchange rate regime as a managed float with no predetermined path for the exchange rate. The pace of depreciation of the nominal exchange rate, however, has been stable. The NBE continues to supply foreign exchange to the interbank market based on plans prepared at the beginning of each fiscal year, which take into account estimates of supply and demand. The transaction-weighted average interbank market exchange rate as of November 29, 2017, is Br 27.1657 = US$1.

Ethiopia maintains four restrictions on payments and transfers for current international transactions, which relate to: (i) the tax certification requirement for repatriation of dividend and other investment income; (ii) restrictions on repayment of legal external loans and suppliers of foreign partners credits; (iii) the prioritization and rationing of foreign exchange to certain imports of goods and services, debt payments and invisibles, and (iv) the requirement to provide a clearance certificate from the 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. In addition, staff is in the process of assessing whether a significant spread between the parallel market cash rate and the official market exchange rate, or any other feature of Ethiopia’s exchange system, may give rise to a multiple currency practice.

Safeguards Assessment

The National Bank of Ethiopia (NBE) was subject to an update safeguards assessment in 2009 (previous assessment was completed in 2001). The updated assessment found improved financial reporting and internal audit practices. Notwithstanding these developments, the assessment noted significant weaknesses. Recommendations focused on strengthening oversight of risks and controls, improving accounting records and the external audit process, and legal amendments to address safeguards weaknesses in the Central Bank Law. Since then, some progress has been reported on the outstanding safeguards recommendations, particularly the establishment of an audit committee, and capacity building for the internal audit function. Staff has recently received audited financial statements for the previous years together with the management letters issued by the NBE’s external auditor. A full set of audited financial statements has now been published on the NBE’s website.

Article IV Consultation

Ethiopia is on the standard 12-month consultation cycle, in accordance with the Decision on Article IV Consultation Cycles (Decision No, 14747-(10/96), 9/28/2010). The last consultation was concluded on September 26, 2016.

Technical Assistance (2016-present)

TA intensity from the HQ is relatively low, and most of the TA is provided through the regional center in East Africa. In FY 2017 Ethiopia received TA equivalent to 2.2 FTEs, ranking 15th among 45 SSA TA recipients. Ongoing and planned HQ TA focuses on tax administration reforms, PFM, resource revenue modeling, and production of quarterly national accounts. In 2016, Ethiopia received an LTX (on the development of the secondary market for government securities) funded by DFID, however little progress was made by the authorities and the contract was terminated early. The authorities, the Fund and the donor are reviewing the outcome of the experience before deciding how to proceed. Recently, the authorities have requested Fund TA on quantifying and assessing tax expenditures and incentives. Future TA could also address weaknesses in data reporting to the fund, with a particular focus on improving the reliability and comprehensiveness of national accounts, fiscal data, and monetary and financial statistics.

Table 1.

The Federal Democratic Republic of Ethiopia: Fund Technical Assistance

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Resident Representative

The IMF had a resident representative in Addis Ababa since 1993 to October 2015, when the term of the last Resident Representative ended. Since then, the office has been staffed by local employees.

Joint Management Action Plan, July 2017-June 2018

(As of October 31, 2017)

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Statistical Issues

(As of November 7, 2017)

I. Assessment of Data Adequacy for Surveillance

General: Data provision is broadly adequate for surveillance. However, in 2016/17 some data reported to the Fund were subject to considerable delays and revisions. The existing data weaknesses reflect capacity constraints and the authorities are seeking to address them through technical assistance (TA).

National Accounts: Deficiencies in the source data and compilation practices affect the accuracy and reliability of the GDP statistics, and issues identified by an STA TA report from 2012 have not yet been addressed. Weaknesses are particularly evident in respect to the estimation of output in key sectors, including agricultural production, and in private consumption, saving, investment, and fixed capital formation. The statistical discrepancies between the expenditure categories and output remain significant. Information provided to the Fund is subject to discrepancies. Policymaking and surveillance would benefit from improving national accounts statistics. The authorities have been receiving TA in this area from STA and AFRITAC East.

Government finance statistics: Despite some improvements, the government fiscal statistics continue to be affected by shortcomings in terms of coverage and outdated reporting standards. Data for the general government are based on Government Finance Statistics Manual (GFSM) 1986. Establishing a framework for compiling and disseminating Government Finance Statistics (GFS) and public sector debt statistics that meet GFSM 2001 is an urgent task (the authorities are receiving TA in this area from AFRITAC East). Lack of consolidation of extra-budgetary funds into comprehensive fiscal reporting hinder proper assessment of the Government’s fiscal stance, savings, and borrowing requirement. Current financial statements of public enterprises and other information on their operations is not available.

Monetary statistics: Monetary and financial statistics (MFS) have not been reported to STA since 2010. The authorities have not yet reported MFS using the Standardized Report Forms (SRFs) and existing MFS data are compiled with deviations from the recommended methodology, such as lack of detailed currency and sectoral breakdown of financial instruments. Data for Other Financial Corporations are not reported. Monetary survey data for both the central bank and commercial banks are subject to frequent delays in reporting for surveillance. Data from commercial banks is subject to significant revisions. Financial Access Survey data have not been reported since 2012.

Financial statistics: Aggregate set of Financial Soundness Indicators (FSIs) neglect many core indicators. In addition, information gaps, e.g.: commercial banks’ income statements, information on distribution of non-performing loans (NPLs) by sector, NPL provisions, maturity of credit, net open position, have implications for conducting an assessment of financial sector risks.

Balance of payments: Balance of payments data require improvements in coverage, valuation, timing, and classification of current account transactions. Financial and capital account transactions are also incompletely covered. Data on FDI is based on an estimation method developed by the NBE. An exploratory survey needs to be conducted to verify the actual investment made in Ethiopia and to establish the universe of the enterprises with private cross border capital. A survey on cross-border financial flows and stocks for the private sector should also be undertaken. Full implementation of BPM6 methodology is recommended.

II. Data Standards and Quality

Ethiopia participates in the General Data Dissemination System (GDDS) and metadata were partially updated in early 2008. No Report on the Observance of Standards and Codes has been completed.

Table 1.

The Federal Democratic Republic of Ethiopia: Table of Common Indicators Required for Surveillance

(As of November 17, 2017)

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1

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.

2

The authorities provide aggregate balance sheet items but not detailed enough for proper financial stability analysis.

3

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

4

Foreign, domestic bank, and domestic nonbank financing.

5

The general government consists of the central government and local governments.

6

Including currency and maturity composition.

7

Reflecting capacity constraints which the authorities are addressing through technical assistance.

1

Formerly PRGF

2

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

3

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 cannot be added.

4

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.

5

The MDRI provided 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.

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Cover IMF Staff Country Reports
The Federal Democratic Republic of Ethiopia: 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia
Author: International Monetary Fund. African Dept.
Volume/Issue:
Volume 2018: Issue 018
Publisher:
International Monetary Fund
ISBN:
9781484338506
ISSN:
1934-7685
Pages:
79
DOI:
https://doi.org/10.5089/9781484338506.002