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IMF softens tone on Ethiopia, projects high growth

IMF softens tone on Ethiopia, projects high growth

Projects a nine percent GDP growth

Unlike preceding Article IV consultation reports on the Ethiopian economic affairs, the International Monetary Fund (IMF) has relaxed its judgment on how the government of Ethiopia is managing the economy.

Following the conclusion of a nearly two-week mission by the IMF Article IV staff, the Fund in its presser said that the country is expected to stay on a nine percent real GDP growth path during the upcoming fiscal year. This projection is at a stark contrast with last year’s 6.5 percent.

Back in 2015/16 fiscal year, the medium-term GDP growth was projected to recover between 7.3 and 7.5 percent. For the 2016/17 fiscal year, the team estimated that Ethiopian economy will land on a nine percent growth rate, making it one of the fastest growing economies in world.

The brief press statement that was released by the IMF this week said that the estimated fiscal deficit is somewhere around 2.5 percent of the GDP mostly due to “prudent budget execution” which steered to “a lower-than-planned fiscal deficit”. According to last year’s report, the IMF said that the general government deficit was at 3 percent of the GDP. However, the external current account deficit, estimated at 10.7 percent of the GDP, remained large, the statement read.

The IMF staff team, led by Julio Escolano, which spent time from September 13 to 26 in Ethiopia, suggested that the government should consider more tight monetary policy corresponding to the already effective fiscal measures.

Concluding the 2017 Article IV Consultation with the government of Ethiopia, Escolano said that timely and effective interventions together with donors have helped Ethiopia to mitigate the human costs the re-emerged drought could have instigated. "The Ethiopian economy showed strong resilience in 2016/17 amid continued weak global prices for Ethiopia’s key exports and re-emergence of drought in parts of the country.”

In addition to that, Escolano advised Ethiopian officials to consider a flexible exchange rate regime which would promote competiveness of the economy. The team also suggested the business climate to be improved to capitalize on “the current positive investor sentiment towards Ethiopia”. This refers to the recent figures that put Ethiopia among the top five FDI destinations in the globe. It is to be recalled that Ethiopia was able to attract FDI worth USD 3.4 billion last year. 

Though the key findings are yet to be public awaiting the approval of the Executive Board on November, the team is said to have presented its findings and recommendations to Prime Minister Hailemariam Dessalegn, already. Technical and policy discussions were also held with Teklewold Atnafu, governor of the National Bank of Ethiopia (NBE), and Abraham Tekeste (PhD), minister of Finance and Economic Cooperation (MoFEC).