- The International Monetary Fund (IMF) has today approved a 14-month, US$240.6 million arrangement under the Exogenous Shocks Facility (ESF) to help Ethiopia cope with the effects of the global recession.
The arrangement was approved under the high access component of the ESF, a facility designed to provide policy support and financial assistance on concessional terms to eligible low-income countries facing temporary exogenous shocks and will make available a disbursement of US$115.1 million immediatelyto the country.
Following the IMF’s Executive Board discussion, Takatoshi Kato, the Deputy Managing Director and Acting Chair, said:
“Ethiopia's economy has been adversely affected by a series of shocks, first from surging commodity prices in 2008, and most recently from the global recession. While the authorities have been successfully implementing a macroeconomic adjustment package since late 2008 to help lower inflation and build up international reserves, the global recession is now putting renewed pressure on the external position as export receipts and remittances weaken and inward direct investment slows”.
The IMF noted that Ethiopian authorities have adopted an appropriate programme for 2009/10 to address the strains on the balance of payments and to keep inflation low.
"The general government budget for 2009/10 envisages some easing of the tight limits on public spending instituted last year, financed by a mix of external and domestic borrowing. Public sector domestic borrowing will be contained to 3 percent of GDP, with the government acting to improve controls over borrowing by public enterprises and monitoring carefully external debt levels to ensure debt sustainability. The authorities are committed to crafting a tax reform strategy, aimed at reversing the decline in the tax-to-GDP ratio recorded in recent years,” MrKato said.
He further stated that Ethiopia’s monetary policy focuses on entrenching single-digit inflation by providing a strong nominal anchor, wile adding that the monetary programme seeks to limit broad money growth to 17 percent for 2009/10, with the National Bank of Ethiopia seeking to enhance its control over reserve money by systematic use of the regular Treasury-bill auctions to manage liquidity.
“Prudent implementation of this programme, accompanied by planned reform measures, will provide a sound macroeconomic environment for economic growth. The financial support being provided under the Exogenous Shocks Facility, coupled with the new allocation of SDRs, will further boost foreign reserves, thereby enhancing confidence in the sustainability of the government's economic program,” he said.
According to the IMF, Ethiopia has faced a turbulent external economic environment in the past two years, stemming from sharp movements in import prices and then the global slowdown.
Surging import prices are said to have helped push reserves down to some US$900 million (1.2 months of imports) by mid-2008 and contributed to an exceptional jump in consumer price inflation. The global recession is now putting renewed pressure on the external position via weaker export receipts and remittances and slowing inward direct investment.
The policies supported under the arrangement, coupled with the Fund's financial support and Ethiopia's increased allocation of Special Drawing Rights, are expected to contribute to the rebuilding of international reserves to 2.5 months of imports by 2010/11, while maintaining a sound macroeconomic environment for growth and poverty reduction, the IMF stated.
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