Press Release No. 18/361

IMF Staff Completes 2018 Article IV Mission to the Federal Republic of Ethiopia

September 26, 2018

• Growth is expected to step up in 2018/9 to 8.5 percent.
• The mission supports the ambitious reform agenda announced by the Prime Minister aimed at opening up important parts of economy to competition and encouraging private sector investment.
• The authorities succeeded in reducing the external current account deficit to 6.4 percent of GDP in 2017/18 through policies to constrain public sector imports and borrowing and tightened monetary policy to reduce external imbalances and contain inflation.

An International Monetary Fund (IMF) staff team led by Mr. Julio Escolano visited Addis Ababa from September 10 to 26, 2018 to conduct the 2018 Article IV consultation discussions with Ethiopia.

At the conclusion of the visit, Mr. Escolano made the following statement:

“Over the last decade, Ethiopia has maintained high economic growth and made commendable progress in considerably reducing poverty and improving living standards. In 2017/18, real gross domestic product (GDP) is estimated to have grown by 7.5 percent, harvest and rapid growth in air transport and manufacturing exports. However, political uncertainty, foreign exchange shortages, and weak prices for traditional exports hampered economic activity. However, the authorities succeeded in reducing the external current account deficit to 6.4 percent of GDP in 2017/18 through policies to constrain public sector imports and borrowing and tightened monetary policy to reduce external imbalances and contain inflation. Prudent budget execution led to a lower-than-planned fiscal deficit, estimated at 3.7 percent of GDP, although tax revenue continued to disappoint.

Growth is expected to step up in 2018/9 to 8.5 percent, supported by stronger confidence as the uncertainty of the previous year recedes, and the availability of domestic and foreign direct investment improves. The authorities’ strategy to shift the engine of economic activity to private sector development while the public sector consolidates is appropriate to maintain strong growth. The mission supports the ambitious reform agenda announced by the Prime Minister aimed at opening up important parts of economy to competition and encouraging private sector investment. At the same time, measures to reduce public sector borrowing and bring inflation back to target need to be intensified, as external imbalances and indebtedness remain a source of macroeconomic risk. The mission encourages the authorities to maintain an appropriately tight monetary and fiscal policy stance, along with a more flexible exchange rate regime, and implement reforms aimed at developing the financial system and markets. These macroeconomic policies, combined with the announced reforms, will improve competitiveness, reduce external imbalances and rebuild buffers, while raising the growth potential of the economy over the medium term.

The IMF staff team had the opportunity to present its key findings and recommendations to Prime Minister Abiy Ahmed, National Bank of Ethiopia Governor Yinager Desse, Minister of Finance and Economic Cooperation Abraham Tekeste, and other key policymakers. Substantive technical and policy discussions were also held with officials of other government agencies, representatives of public enterprises and the private sector, labor unions, and development partners. The staff team would like to thank the authorities for their hospitality and constructive discussions.”