Multiple Shocks Slowing Ethiopia’s Economic Growth: IMF

ADDIS ABABA – Multiple shocks hitting Ethiopia are slowing its economic growth, further increasing inflation and creating fiscal and external pressures, said a team of the International Monetary Fund (IMF) today.

The IMF team, led by Sonali Jain-Chandra, made a five-day-long technical staff visit to Ethiopia and held discussions with several government officials, including Minister of Finance, Ahmed Shide, and Governor of the National Bank of Ethiopia, Dr. Yinager Dessie, last week. 

In a statement today, Jain-Chandra said the Ethiopian economy has been subject to multiple shocks over the past two and a half years.

These shocks include the COVID-19 pandemic, drought, conflict in the north of Ethiopia, and the spillover effect of the war in Ukraine as well as a sharp fall in donor financing and Foreign Exchange (FX) shortage.

Their impact “has created significant macroeconomic and humanitarian challenges,” said Jain-Chandra.

It will also force Ethiopia’s economic growth to slow down to 3.8% in 2022, from 6.3% last year, according to IMF’s latest forecast.

The growth rate is significantly lower than the government of Ethiopia’s 6.6% projection for the year.

‘Budget deficit to Widen’

Despite the difficult economic environment, the IMF’s team said exports and Foreign Direct Investment flow to Ethiopia “have held up well”. 

However, it said rising global commodity prices for fuel, food, and fertilizer, driven, in part, by the war in Ukraine, will increase imports and widen the current account deficit in FY 2021/22. 

“This, combined with lower external loan disbursements has weakened the external sector and put downward pressure on reserves, which remain inadequate,” said Jain-Chandra.

According to the IMF team, authorities are committed to improving the efficiency of public investment, oversight, and reforms of State-Owned Enterprises and containing public sector borrowing, consistent with their goal of meeting development objectives while strengthening debt sustainability, 

“The progress on implementing roadmaps on foreign exchange (FX) reforms and modernization of monetary policy should help address FX shortages and reduce inflation,” Jain-Chandra added.

“Continued progress on reforms to shift from public to private sector-led growth as laid out in the Homegrown Economic Reform Plan will contribute to high and sustainable growth over the long term,” she added. 

Discussion to Continue 

The IMF team’s visit to Ethiopia was aimed at discussing with authorities in Ethiopia about their reform plans and economic developments.

The outcome could provide important input for a future mission to negotiate a potential new Fund program, according to the IMF.

During the discussions, Jain-Chandra said authorities aim to address macroeconomic imbalances and remain committed to structural reforms to support a transition to private sector-led growth over the medium term.

The delivery of a debt treatment for Ethiopia under the G20 Common Framework, as part of a package supported by an IMF program, is essential to reduce debt vulnerabilities, said the IMF team.

“The authorities also reiterated their interest in an IMF program to support their reform agenda,” said Jain-Chandra adding that the delivery of a debt treatment for Ethiopia under the G20 Common Framework, as part of a package supported by an IMF program, is essential to reduce debt vulnerabilities. 

“The Fund will continue to cooperate closely with the Creditor Committee to provide technical support to the Common Framework process and is working on steps towards commencing discussions on an IMF program as soon as conditions allow,” Jain-Chandra added.

“We welcome recent steps to build peace and address the humanitarian situation and hope for continued improvements in these areas,” the IMF team said.

Featured Image Caption: An Ethiopian delegation, led by Finance Minister Ahmed Shide, holding a meeting with IMF’s managing director, Kristalina Georgieva, during its visit to Washington in April, this year. [Photo File]