IMF Executive Board Concludes 2015 Article IV Consultation with Ethiopia


Press Release No. 15/445
September 30, 2015
On September 21, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Ethiopia.Ethiopia’s recent macroeconomic performance has continued to be strong overall, though with some rising domestic and external vulnerabilities. Economic growth in 2014/15 was buoyant (at an estimated 8.7 percent), supported by booming manufacturing and construction sectors. However, inflation has been on the rise, with domestic food prices pushing it above 10 percent. External vulnerabilities have also increased as exports of goods and services slowed significantly, while imports continued growing fast. A sharp widening of the current account deficit (to an estimates 12.8 percent of GDP) was largely offset by robust capital inflows, with a 50 percent increase in foreign direct investment and a much higher public borrowing from abroad. The general government deficit expanded only marginally (by 0.2 percentage point) to an estimated 2.8 percent of GDP. At the same time, public enterprises continued to borrow heavily to finance their accelerated investment plans. As a result, their financing needs increased to 7.4 percent of GDP, while public and publicly-guaranteed debt reached an estimated 50 percent of GDP in June 2015.

The economic outlook remains favorable, reflecting the country’s significant potential, generally sound macroeconomic policies, and the government’s efforts to improve infrastructure and attract foreign direct investment. In the medium term, staff forecast strong growth at 7½ – 8 percent. Public investment is expected to moderate, while private investment is projected to increase only gradually, reflecting constraints on access to credit and foreign exchange, the overvalued exchange rate, as well as other competitiveness challenges. The authorities’ medium-term budget targets a general government deficit of less than 3 percent of GDP and maintains a strong pro-poor focus. Monetary policy, anchored on base money growth, is geared toward maintaining inflation in single digits. The public debt-to-GDP ratio is expected to increase, reflecting large financing needs associated with implementation of the second Growth and Transformation Plan.

Executive Board Assessment2

Executive Directors commended the authorities’ macroeconomic management that has delivered robust GDP growth and poverty reduction. Directors noted that the outlook for Ethiopia remains broadly favorable but domestic and external vulnerabilities have increased. Accordingly, they encouraged the authorities to persevere with policies that safeguard macroeconomic stability, strengthen buffers, and foster private-sector participation in the economy.

Directors agreed that fiscal policy has been prudent and appropriately pro-poor. However, with tax revenue below potential, they recommended broadening the tax base and improving revenue administration to mobilize more resources for needed development spending. Directors expressed concern over the acceleration of public sector borrowing with attendant risks of external debt distress and private sector crowding-out. In this regard, they advised careful selection and implementation of public projects with judicious use of non-concessional external financing and greater use of public-private partnerships. Directors welcomed the authorities’ plans to establish an agency for the oversight of state-owned enterprises, which will strengthen the transparency of the public sector.

Directors supported the National Bank of Ethiopia’s tight monetary stance, in light of recent inflationary pressures. Phasing out the central bank’s direct advances to the government and full pass-through of lower oil prices would also help reduce inflation. More broadly, Directors recommended modernizing the monetary policy framework and strengthening liquidity management. Directors took note of the staff assessment that the exchange rate appears to be overvalued in real effective terms and encouraged the authorities to allow greater exchange rate flexibility to facilitate external adjustment.

Directors agreed that further steps to secure positive real interest rates and greater financial deepening remain key to bolstering domestic savings and investment. To increase credit to the private sector, Directors also supported phasing out the requirement for banks to channel resources to the national development bank, which may distort financial intermediation. They also stressed the importance of maintaining an adequate regulatory and supervisory framework to support financial development.

Noting a softening of export activity, Directors recommended more decisive action to strengthen the business climate and enhance external competitiveness. Greater exchange rate flexibility, less burdensome regulation, and easier private sector access to credit and foreign exchange would be steps in the right direction. Opening some strategic sectors to foreign investment could also improve the provision of critical services.

Directors emphasized the importance of timely and comprehensive data for effective policy design and evaluation. They called for continued improvements in Ethiopia’s statistical capacity, particularly as regards national accounts and financial sector statistics.

Ethiopia: Selected Economic and Financial Indicators 1
2012/13 2013/14 2014/15
(Annual percentage change)
National income and prices
GDP at constant prices (at factor cost) 9.8 10.3 8.7
GDP deflator 4.7 10.2 8.3
Consumer prices (period average) 13.5 8.1 7.7
Consumer prices (end period) 7.4 8.5 10.4
External sector
Exports of goods and services (U.S. dollars, f.o.b) -0.5 8.4 -5.9
Imports of goods and services (U.S. dollars, c.i.f) 0.7 17.7 20.7
Export volume 11.2 2.9 -3.6
Import volume 8.1 27.5 28.3
Terms of trade (deterioration -) -9.0 1.1 1.6
Nominal effective exchange rate (end of period) -5.2 -2.0 13.2
Real effective exchange rate (end of period) -0.9 3.7 21.4
(Percent of beginning period stock of broad money, unless otherwise indicated)
Money and credit
Net foreign assets 2.7 0.5 0.7
Net domestic assets (including other items net) 21.5 26.4 23.5
Broad money 24.2 26.9 24.2
Base money (annual percentage change) 13.6 18.7 15.2
Velocity (GDP/broad money) 3.7 3.5 3.4
(Percent of GDP, unless otherwise indicated)
Financial balances
Gross domestic savings 19.2 19.0 18.2
Public savings 5.7 5.0 4.9
Private savings 13.5 14.0 13.3
Gross domestic investment 35.8 36.8 40.0
Public investment 19.1 20.0 22.4
Private investment 16.7 16.8 17.6
Resource gap -16.6 -17.8 -21.8
External current account balance, including official transfers -5.9 -8.0 -12.8
Government finances
Revenue 14.3 14.0 15.0
Tax revenue 12.4 12.7 12.9
Nontax revenue 2.0 1.2 2.1
External grants 1.5 1.1 1.4
Expenditure and net lending 17.8 17.7 19.2
Fiscal balance, excluding grants (cash basis) -3.5 -3.8 -4.2
Fiscal balance, including grants (cash basis) -1.9 -2.6 -2.8
Total financing (including residuals) 1.9 2.6 2.8
External financing 1.9 1.9 1.3
Domestic financing (not including privatization) 0.2 1.3 1.5
Public debt 2 37.0 41.2 50.2
Domestic debt

Sticvstic stic debt

16.6 19.1 24.1
External debt (including to the IMF) 20.3 22.1 26.2
Overall balance (in millions of U.S. dollars) 144 -36 148
Gross official reserves (in millions of U.S. dollars) 2368 2496 3256
(months of imports of goods and nonfactor services of following year)3 1.8 1.5 2.0
GDP at current market prices (billions of birr) 865 1047 1241
Sources: Ethiopian authorities and IMF staff estimates and projections.
1 Data pertain to Ethiopian fiscal year from July 8 to July 7.
2 Public debt includes general government and state own enterprises (excluding Ethiopian Airlines).
3 The NBE definition for import coverage excludes food-aid and franco-valuta imports.

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:


Media Relations