ADDIS ABABA – The IMF approved on Thursday a 411 million US dollars loan to help Ethiopia relieve the COVID-19 pandemic’s effects on its fast-growing economy.
The East African nation is facing a pronounced economic slowdown and an urgent balance of payments need owing to the COVID-19 pandemic.
To address this urgent need, the International Monetary Fund said it’s Executive Board approved a 411 million US dollar emergency assistance for Ethiopia under the Rapid Financing Instrument.
The money will come from the Rapid Financing Instrument (RFI), which allows nations to circumvent the lengthy negotiations usually needed to secure assistance.
Apart from the emergency loan, Ethiopia will benefit from IMF debt service relief under the Catastrophe Containment and Relief Trust or CCRT.
The Board approved Ethiopia’s request for relief under the CCRT on debt service falling due to the IMF until October 13, 2020 of about US$12 million, according to the Fund.
The RFI money, along with the debt relief, will help Ethiopia “address balance of payments pressures and create fiscal space for essential pandemic-related expenditures”, said Tao Zhang, Deputy Managing Director and Chair of the board.
– Priority on Health –
The official of Washington-based crisis lender said the COVID-19 pandemic Ethiopian authorities have moved decisively to contain the spread of the virus and manage the economic fallout from the global downturn.
“A temporary widening of the budget deficit is appropriate,” he said. “The immediate priority is to increase spending on health care and provide emergency assistance, including food assistance”.
Tao said the Ethiopian authorities “ are committed to full transparency on the spending for the emergency response and aim to conduct an ex-post audit of crisis-related spending once the crisis abates”.
“Fiscal consolidation will need to resume after the crisis, with a focus on strengthening debt sustainability and domestic revenue mobilization,” he said.
The National Bank of Ethiopia (NBE) has already provided liquidity to banks to maintain financial stability.
“Once the crisis abates, monetary policy will need to be tightened significantly to achieve the single-digit inflation objective,” Tao said.
“Strong efforts are needed to address the real overvaluation of the exchange rate, allowing the exchange rate to act as a shock absorber,” suggested IMF Deputy Managing Director.
Image: The Executive Board [Photo IMF]