International Monetary Fund (Washington, DC)

6 June 2014

Ethiopia: Statement By an IMF Staff Mission On the 2014 Article Iv Consultation With Ethiopia

press release

An International Monetary Fund (IMF) mission led by S. Kal Wajid visited Addis Ababa June 11-25 to conduct discussions for the 2014 Article IV Consultation with Ethiopia.

At the conclusion of the mission, Mr. Wajid issued the following statement:

"The Ethiopian economy continues to experience robust growth and single-digit inflation. The mission projects real GDP growth in the 8-8.5 percent range for 2013/14 and 2014/15. The expansion in economic activity has contributed to poverty reduction and progress toward achieving the Millennium Development Goals. Deterioration in the trade balance this year was partly offset by higher net inflows from services and transfers. Strong external loan and higher foreign direct investment, however, allowed for a modest increase in gross international reserves. Sizeable investment spending of public enterprises continues to absorb a large share of domestic financing and constrain credit available to the private sector.

"Going forward, the mission recommends continued cautious monetary policy stance that keeps money growth consistent with preserving the gains on inflation and achieving robust economic growth. The stable inflation conditions are ripe for developing market-based instruments of indirect monetary control. In this respect, there is a need to gradually raise nominal interest rates to activate the Treasury bill market for more flexible liquidity management. There is scope for improving the market functioning and price setting mechanism for the exchange rate. This may entail greater exchange rate flexibility not only to help to clear the foreign exchange market but also to promote the competiveness of the traded goods sector. The mission supports the National Bank of Ethiopia's objective of gradually raising foreign exchange reserves to 3 months of imports.

"The mission stresses the importance of obtaining comprehensive financial information of major public enterprises for establishing an overall fiscal anchor. The consolidated fiscal position is required to assess the fiscal policy impact on macroeconomic developments and debt sustainability. The continued large borrowing of the public sector with large share from domestic banking system is crowding out the private sector. In this respect, to further support private sector development and employment creation, there is a need to reduce public sector borrowing by either prioritizing investment projects or attracting more external financing at appropriate terms.

"Ethiopia's public sector led development strategy has delivered robust growth and rising living standards. To sustain these achievements, adapting policies to provide greater scope for the private sector will be important. In terms of the next Growth and Transformation Plan, consideration should be given to mitigating constraints to private sector development and improving export competiveness. Concerted efforts are needed for improving efficiency of trade logistics, increasing access to financial services, ensuring a competitive exchange rate, and providing a predictable regulatory environment for businesses. Harnessing the transformation power of private enterprises will be increasingly important as Ethiopia transition from agricultural to industrial based economic growth.

"The IMF Executive Board is expected to complete the 2014 Article IV consultation in September 2014."

The mission met with Prime Minister Hailemariam Desalegn, Governor of the National Bank of Ethiopia Teklewold Atnafu, State Minister of Finance and Economic Development Abraham Tekeste, Economic Advisor to the Prime Minister Newai Gebre-ab, other senior officials, as well representatives of the private sector, the international community, and civil society

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