The International Monetary Fund (IMF) forecasts that Ethiopia’s economy will only grow by 2 percent for the current fiscal year began July 8, 2020.“Looking forward, economic growth is projected to be 2 percent in 2020/21 due to the lingering impact of the pandemic, and is expected to rebound to 8.7 percent in 2021/22, consistent with a global recovery,” IMF said today its statement.
“Inflation has decreased since its peak of 23 percent in April 2020 but remains high at just over 19 percent, driven largely by persistently high food prices. Risks to the economic outlook are tilted to the downside, amid uncertainty regarding the magnitude and duration of the pandemic, as well as other risks including political uncertainty and the locust infestation experienced in some parts of the country. The domestic security situation has created humanitarian and reconstruction needs that require an adjustment of policies and support from the international community,” it said.
The IMF made the statement after its team concluded discussions with Ethiopian authorities. “A modest fiscal expansion is envisaged this fiscal year to accommodate the humanitarian assistance and reconstruction needs. At the same time, the authorities are now moving to enhance domestic revenue mobilization. On social spending, the indexation of benefits for the rural and urban poor to general inflation is expected to improve the adequacy of benefits in these programs. Greater prudence in borrowing by state-owned enterprises combined with reforms to improve governance and oversight of SOEs and the adoption of the plan to address legacy SOE debt will support the sustainability of public finances,” IMF said.
“The growth of reserve money is projected to return to a path consistent with reducing inflation to the central bank’s single digit objective. Financial sector reforms have progressed, with the development of a treasury bill market reducing the need for monetary financing of the budget. Steadfast implementation of the comprehensive roadmaps on reforming the monetary policy framework and FX regulations should lay the groundwork to achieve low and stable inflation, support a smooth transition to a market-clearing exchange rate over time and help address foreign exchange shortages. Measures to address weakness in the balance sheets and improve risk management of the two state-owned banks, and steps to strengthen bank supervision will contribute to safeguarding financial stability.”