The International Monetary Funds (IMF) said on Tuesday the economy of Ethiopia in East Africa was strong with sustained reserves expected to hit $4 billion and efforts to reduce poverty heading in the right direction, however, performance of goods exports remain weak, foreign exchange shortages persist and inflation continues to be high.
In a statement received by TODAY NEWS AFRICA in Washington DC, the IMF said In 2018/19, real gross domestic product (GDP) is estimated to have grown by 9 percent, driven by manufacturing and services, adding that Ethiopia has sustained high economic growth over the last decade.
On December 20, 2019, the Executive Board of the IMF concluded the Article IV Consultation with Ethiopia. At the same time, the Board approved $2.9 billion three-year loan under the Extended Credit Facility (ECF) and the Extended Fund Facility (EFF) for Ethiopia.
An extended credit facility (ECF) allows the borrowing country to take out money over an extended period of time rather than reapplying for a loan each time it needs money while an extended fund facility (EFF) is a medium-term arrangement which allows countries to borrow a certain amount of money, typically over a three- to four-year period. The EFF aims to address structural problems within the macroeconomy that are causing chronic balance of payment inequities.
In it latest assessment of one of Africa’s fastest growing economies, IMF said policies appropriately targeted at containing public investment and debt contributed to a further narrowing of the current account deficit to 4.5 percent of GDP and a reduction in public and publicly-guaranteed debt to 57 percent of GDP.
“Inflation remained elevated in double digits, largely due to higher food prices, though non-food inflation has also been trending upward. While revenues came in below target, cuts in expenditure contained the fiscal deficit to 2.5 percent of GDP, below budget,” IMF said.
Ethiopian authorities have announced a Homegrown Economic Reform Plan, consisting of a mix of macroeconomic, structural and sectoral policies, to address vulnerabilities and tackle structural bottlenecks inhibiting private sector activity.
The macroeconomic policy measures envisaged under the Plan to address external imbalances, debt vulnerabilities, and inflation are expected to contribute to a slower growth in real GDP of 6.2 percent in 2019/20, IMF said.
It said public expenditure restraint and tighter monetary policy are expected to contribute to a gradual reduction in inflation while reserves are expected to improve to around US$4 billion by end 2019/20, sufficient to cover 2 months of prospective imports, due to higher external financing flows, including from the Fund.
“Over the medium term, macroeconomic and structural reforms announced by the authorities are expected to lead to a reduction in public debt, lower external vulnerabilities, and stronger growth, investment and exports. This outlook is subject to downside risks, in particular from domestic opposition to reforms ahead of the upcoming elections, rising protectionism worldwide, weaker-than-expected global growth, and climate-related shocks,” IMF said.