The International Monetary Fund (IMF) on Friday, again, forecast an economic turbulence for Ethiopia in 2020 and 2021 amid COVID-19 pandemic, saying that air transport, travel and tourism would be affected the most.
“The COVID-19 pandemic has had a significant adverse impact on Ethiopia and created serious health and economic challenges.
“Economic growth is estimated to have slowed considerably in 2019/20, and projected to be subdued in 2020/21, with a gradual recovery expected to begin in late 2020,” said Sonali Jain-Chandra, an IMF staff who led a virtual mission to Ethiopia from June 5–9, June 15–19, and July 27–31.
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Jain Chandra said the main economic impact of the pandemic is expected to fall on air transport, travel and tourism, and industrial production, due to social distancing measures and weaker external demand.
“Risks to the economic outlook are tilted significantly to the downside, amid uncertainty regarding the magnitude and duration of the pandemic as well as other risks including the locust infestation experienced in some parts of the country,” she said.
The virtual mission between the IMF team and Minister of Finance, Ahmed Shide; Governor of the National Bank of Ethiopia, Dr. Yinager Dessie, Commissioner of the National Planning Commission, Dr. Fitsum Assefa, other government officials, representatives of the private sector, including banks, and the international donor community, was the first review of Ethiopia’s economic program supported by the IMF’s ECF-EFF arrangements.
Jain-Chandra added: “In the face of the unprecedented shock, the authorities have implemented a comprehensive response through measures to contain the spread of the virus and assist vulnerable households. On the fiscal front, the supplementary budget approved in May provided resources for additional healthcare and humanitarian spending and approved fiscal relief to businesses. The National Bank of Ethiopia (NBE) provided additional liquidity to support the banking system. In support of the authorities’ pandemic response, the IMF disbursed US $412 million of emergency financing in April through its Rapid Financing Instrument.
“While performance under the ECF-EFF program had gotten off to a good start with most end-December 2019 performance criteria met, the onset of the pandemic necessitated a reexamination of near-term macroeconomic policies.
“The program review focused on implementing an effective near-term policy response to the COVID-19 crisis, thereby setting the stage for a strong and durable recovery, and formulating a path to achieving the authorities’ development objectives supported under the program. While recognizing the need to provide support for the economy in the near term, the mission welcomes the authorities’ commitment to reverting to policies to ensure macroeconomic stability and a return to sustained inclusive growth once the pandemic abates. Reforms to strengthen domestic revenue mobilization will allow Ethiopia to meet its development objectives in a sustainable manner. The indexing of recipient benefits under existing social safety net programs will ensure an increase in support provided to the most vulnerable. The authorities’ efforts to control public sector borrowing and reform the public sector will support a continued decline of the external debt to GDP ratio. Additional debt reprofiling from external creditors would also help reduce debt vulnerabilities.
“After being allowed to rise as the pandemic struck, reserve money growth should be appropriately slowed in the second half of 2020/21 to address elevated inflation as conditions normalize. Important steps have been taken to develop the financial sector and build a modern monetary policy framework. The adoption of a roadmap to guide reforms in support of a transition over time to a market-clearing exchange rate will help address the existing foreign exchange shortage.
“Consistent with their Homegrown Economic Reform Program, the authorities are implementing reforms to boost the role of the private sector in the economy. Adoption of the new investment law earlier this year will facilitate private investment, while reforms in the telecom sector, including progress on the issuance of two new telecom licenses, will further strengthen the business environment.”
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