On November 30, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Federal Democratic Republic of Ethiopia.
In 2017/18, real gross domestic product (GDP) grew by 7.7 percent, driven by favorable harvests and rapid growth in air transport and manufacturing exports. However, political uncertainty, foreign exchange shortages, and adverse terms-of-trade trends hampered economic activity. The authorities succeeded in reducing the external current account deficit to 6.4 percent of GDP in 2017/18 through determined policies to restrict public sector imports and borrowing and a tight monetary policy stance. Prudent budget execution led to a lower-than-planned fiscal deficit, estimated at 3.7 percent of GDP. Tax revenue continued to disappoint and was offset by expenditure savings, while ring-fencing pro-poor programs. Inflation, at 12 percent in September 2018, has edged down but remains above the National Bank of Ethiopia (NBE)’s single-digit target reflecting lagged effects of public sector credit expansion in 2017, passthrough of the October 2017 devaluation, and political disruptions which affected distribution networks. The NBE reduced the growth of base money from 32 percent in July 2017 to 19 percent in June 2018 to rein in inflation. However, broad money and credit growth remained strong.
Growth is expected to step up in 2018/19 to 8.5 percent, supported by stronger confidence as the political uncertainty of previous years recedes, and external financial inflows, including FDI temporarily ease external financing constraints and foreign exchange shortages. The authorities have announced a budget for the fiscal year ending June 2019 built on prudent expenditure control. Also, they have committed to refrain from non-concessional financing for new projects and to shift ongoing projects to concessional financing when possible. The NBE has adopted a further tightening of the monetary policy stance which should help inflation converge to the authorities’ target. The authorities have announced their intention to open key economic sectors to domestic and foreign private investment and competition, including through privatization, public-private partnerships and concession agreements.
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.