IMF says Ethiopia has moved to restore economic stability while maintaining strong growth
By Tigrai Online
June 23 2010
thiopia has made progress in restoring economic stability in 2009, while maintaining strong growth, the IMF says in its regular review of the country’s economy.
Ethiopia’s top short-term priority is to arrest a demonetization trend—where the economy is cash dependent and the development of more advanced and efficient payments, savings, credit, and financial tools are lagging. Monetization and financial deepening are engines of growth and development.
The government needs to urgently reform monetary and financial policy so that financial institutions can mobilize deposits with attractive interest rates and extend credit to support the growth of businesses and the economy at large. This requires higher interest rates—at least as high as the inflation rate—tighter control on the printing of money by the central bank to keep inflation low, and the lifting of credit controls on financial institutions.
Ethiopia’s real GDP growth is estimated to have eased to 7 percent in 2009/10 from near double-digit growth recorded in 2008/09, as the economy felt the impact of, but showed some resilience to, the global economic crisis.
Following commodity price surges in 2007–2008, Ethiopia experienced rising inflation and falling international reserves. Overall consumer price inflation peaked at 64 percent in July 2008 and international reserves fell to 1 month of imports at end-October 2008. In response, a policy package was adopted in late 2008 that included substantial fiscal and monetary adjustments, notably the elimination of fuel subsidies, as well as measures to protect vulnerable groups.
The IMF supported these policies through the Exogenous Shocks Facility (ESF), first in February 2009 with a low access disbursement, followed by a 14-month ESF arrangement under the high access component in August 2009.