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The International Monetary Fund (IMF), global financial body, projected that the Ethiopian economy growth will slow to 6.5 percent in this fiscal year unless there’s more private-sector involvement in infrastructure projects.
The IMF statement released on October 1 indicated that an increased role of the private sector to leverage the large public infrastructure investment and efforts to improve the doing business conditions that: “Real GDP growth will slow down to 6.5 percent in 2012/13 and over the medium term,” the statement explained. However, the Ethiopian government projects the economy will grow at double digit rates.
The NBE directive that requires commercial banks (excluding CBE) to hold bills issued by NBE is impeding financial intermediation. By creating a significant maturity mismatch in the private bank’s balance sheets, has a considerable negative impact on their capacity to play their conventional intermediation role. Financial sector soundness indicators do not point to immediate concerns. However, recent developments such as the increasingly dominant market share of CBE and its growing exposure to large public enterprises, and the adverse impact of NBE directives on private banks suggest a need for a closer scrutiny of the banking system.
The 2012/13 budget focuses on sustaining growth, lowering inflation further, mobilizing revenue, and spending on pro-poor projects. The revenue target is within reach with the continuation of administrative efforts. Total expenditure is projected to grow slower than nominal GDP, but poverty-related spending as a share of GDP will be maintained.
The IMF Directors encouraged the authorities to persevere with their fiscal reforms. “In particular, they saw scope for further improvements in tax administration and revenue mobilization,” the statement added. Additional public financial management reforms and development of a medium-term debt management strategy encompassing both domestic and external debt help achieve the fiscal objectives under the Growth and Transformation Plan and maintain fiscal sustainability.
Directors stressed that effective financial sector supervision and regulation remain crucial for macroeconomic stability. In this regard they advised the authorities to consider participation in the Financial Sector Assessment Program which would help identify vulnerabilities in the financial system and suggest corrective actions as appropriate. The IMF has called on the Ethiopian government to implement new efforts to boost the country’s private sector or face a slowdown of economic growth.