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December 23, 2019

The IMF has approved a program for Ethiopia of almost US$3 billion. The program is aimed at supporting the Ethiopian government’s own Homegrown Economic Reform Program, which is designed to eliminate macroeconomic imbalances and lay the foundation for sustainable and inclusive growth. The authorities want the economy to transition away from being public sector-led to one that is driven by the private sector.

Here are six key takeaways about Ethiopia’s new program.

  • Program Ownership:The authorities have developed their very own ambitious Homegrown Economic Reform Plan tailored to the country’s needs and preferences. They have engaged in wide-ranging outreach to discuss the economy’s future with key stakeholders and have taken important initial steps to implement reforms.
  • Program details: The IMF approved the Ethiopian authorities’ request for an almost US$ 3 billion loan under its Extended Credit Facility and Extended Fund Facility to back the Homegrown Economic Reform Plan. As well as helping to address the foreign exchange shortage, the program will also aim to reduce debt vulnerabilities. Other key objectives include reforming the financial sector and boosting revenue mobilization which will be supported by the provision of technical assistance and training.
  • Aims of the program: The program builds on the authorities’ actions by ensuring public sector borrowing is in line with lower debt levels and stronger oversight of state-owned enterprises. Monetary policy will aim to bring inflation into single digits. Exchange rate reform will address foreign exchange shortages and increase exchange rate flexibility and, combined with structural reform, will further improve export competitiveness. Revenue reforms and efforts to increase the efficiency of public investment will ensure that infrastructure and social spending needs are met while maintaining sustainable debt levels.
  • Protecting social spending and reducing poverty:  Fiscal policy is designed to create the space for more spending to tackle poverty. Expenditures on the rural and urban poor will be increased to ensure that sufficient resources are dedicated to support the Productive Safety Net Program, one of the largest and most successful social safety net programs in Africa.
  • From public to private sector-led growth: The government’s investment in infrastructure and education has laid a good foundation for the transition to private sector-led growth. To generate returns from past investments, reforms are needed. These include resolving the foreign exchange shortage, improving the business environment that will boost investment and accelerate the economy’s transformation.
  • Creating a vibrant financial sector: The program is also aimed at building on recent financial sector reforms by improving access to credit by the private sector—this has been identified as a key obstacle to private investment. Financial sector development needs to be accompanied by stronger supervision and financial safety nets to ensure that the financial sector remains stable.

IMF

 

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4 comments

  1. At the end of the day, the ‘program’ would have minimal impact in resolving the economic and social problems that the IMF used as the basis for designing it in the first place. Rather it would increase the foreign indebtedness, external loan services just as happened in many Latin American countries; other African countries such as Sudan and Zimbabwe faced the same. There is nothing ‘home grown program’ as the IMF stated, but designed and executed by the institution and sister sister multilateral lenders such as the World Bank and African Development Bank.

    I am afraid part of the money the IMF and others lent would be used to service debt owed to previous lenders since the country does not have foreign exchange to service them.

    What I would have preferred: live within your means, do not borrow to spend on unsustainable projects/programs, be self reliant as much as possible, encourage the private sector to lead the economy, etc.

    Between the lines, the IMF has alluded to the coming official devaluation(s) of the Birr. That is a standard prescription of IMF and World Bank to promote exports, but that did not work as believed in other countries like Nigeria and Ghana. It would only exacerbate domestic inflation.

    1. Zena T/M.

      Regardless the devaluation , this loan is expected to reach all Ethiopians by inspiring all to begin eating three fully balanced meals everyday. Isn’t that an achievement worth being grateful for Prosperity Party?

  2. A corrupt generation is built in Ethiopia under the EPRDF regime and all those corrupted officials still working actively in the country. How was it possible to eliminate corruption in presence of these old bureaucrats and young generations aspiring to be best thieves/ embezzlers? For corruption to wither away the EPRDF and their lackeys have to be baptized with non-corruption thinking and integrity to truly serve their poor fellow citizens.

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