Press Release No. 08/115

Press Release: Statement at the Conclusion of the 2008 Article IV Consultation Mission to the Federal Democratic Republic of Ethiopia

May 19, 2008

An International Monetary Fund (IMF) mission team, led by
Mr. Robert Corker, visited the Federal Democratic Republic of Ethiopia during May 7-19, 2008, to conduct discussions for the 2008 Article IV consultation. At the conclusion of the visit, the mission issued the following statement:

"Ethiopia has recorded impressive growth during the past few years—the fastest for a non-oil exporting country in Sub-Saharan Africa. Growth has been supported by structural reforms and infrastructure development, as well as favorable agricultural conditions. Rapid growth has contributed to poverty reduction and progress toward the Millennium Development Goals (MDGs). However, it has also been accompanied by rising pressures on prices and international reserves, exacerbated by sharply higher world oil prices. In March, the 12-month increase of overall inflation was 30 percent, with food price rises of 40 percent (year on year) having a particularly strong negative impact on the urban poor. Reserves were below 2 months of imports.

"The consultation discussions focused on policies to reduce inflation while preserving the growth momentum. In this regard, the mission supports the authorities' objectives to return to single-digit inflation and rebuild reserves to three months of imports. It recognizes the measures taken so far to achieve these objectives, including through actions to slow broad money growth to below 20 percent.

"To place inflation on a firmly declining path the mission advised the authorities to support efforts to reduce monetary growth through a tightening of fiscal policy in FY2008/09 (July-June). It also recommended the authorities seek additional external financing on a grant or concessional borrowing basis to buffer the severe effects of high world oil prices on the balance of payments and soften the impact of domestic policy tightening on economic activity. Such financing, for example, could facilitate needed investments in the power sector without crowding out private domestic borrowing.

"Over the medium term, the mission expressed support for the government's overall strategy to strengthen the foundations for growth—with an increasing role for the private sector—while preserving macroeconomic stability. Key aspects include scaling up public sector investment in infrastructure, health and education, while maintaining a sustainable debt position, and boosting overall economic activity through commercialization of agriculture and fostering the non-farm private sector.

"The mission emphasized that it will be critical to strike a judicious balance between demand-dampening and growth-enhancing measures in the next few years to achieve macroeconomic stability and permit a return of international reserves to a comfortable level. This will allow the Ethiopian economy to become more resilient to shocks.

"The mission would like to thank the authorities for frank and open discussions, as well as the warm hospitality extended to the team."