IMF releases statement on Article IV Consultation


Recommends public, private balance in the Ethiopian economy

The anticipated statement on the Article IV Consultation of the International Monetary Fund (IMF) for Ethiopia has been released this week. The statement suggested that a balance should be struck between public and private sectors in the Ethiopian economy.
The IMF mission visited Addis Ababa from June 19 to July 3rd and held discussions with high ranking government officials including Prime Minister Hailemariam Desalegn, on  the 2013 Article IV Consultation. 
According to the IMF statement, the mission met with the PM, Minister of Finance and Economic Development (MoFED), Sufian Ahmed, Governor of the National Bank of Ethiopia (NBE), Teklewold Atnafu, Economic Advisor to the Prime Minister, Neway Gebreab, along with other senior officials as well as representatives of the private sector, the international community and civil society.
“The Ethiopian economy continues to experience robust growth and reduction in inflation. For 2012/13, the mission estimates real GDP growth at a robust 7 percent, despite a difficult global economic environment and end-year inflation at 6.6 percent,” said S. Kal Wajid, Head of Mission.   Wajid indicated that the expansion in economic activity has contributed to poverty reduction and progress toward achieving the Millennium Development Goals (MDGs).
The statement also indicated that tight monetary policy and cautious execution of government budget have contributed to the deceleration of inflation, which also reflects in the slowdown in the rise of food prices. “The trade balance has deteriorated, but an increase in transfers and loan disbursements from abroad allowed for a small increase in gross international reserves,” the Article IV Consultation statement indicated.
According to the IMF statement, sizeable investment spending of public enterprises continues to absorb a large share of domestic financing and constrain credit available to the private sector.
It also includes recommendations and adjustments to accelerate the country’s economic growth in a healthy manner. 
Going forward, the mission recommends a cautious stance of monetary policy that keeps money growth consistent with preserving the gains on inflation and achieving robust economic growth. “Raising nominal interest rates is required to activate the Treasury bill market for more flexible liquidity management and monetary policy implementation,” the statement recommended.
It also stated that a well functioning Treasury bill market is also a precondition for establishing a market for longer term government securities. 
It said that there is scope for improving the functioning of the foreign exchange market. “This may entail greater exchange rate flexibility, which is essential to maintain external competiveness and achieve the authorities’ broadly-based growth objectives,” it added.
The mission supports the National Bank of Ethiopia’s (NBE) objective of gradually raising foreign exchange reserves to 3 months of imports.
In the past fiscal year insufficient reserve has been one of the major constraints for economic growth, mainly import trade, while the government defended that it has sufficient reserves to harmonize the business activity, as usual.
According to the business community, the Letter of Credit (LC) problem has not yet been resolved.  The issue was raised a week ago at the Public Private Conference chaired by the PM. “We are forced to wait for months to receive hard currency from banks,” said Gizeshwork Tessema, a businesswoman who is active in the freight forwarding business, at the conference.       
The IMF statement also recommended that the financing of the Growth and Transformation Plan (GTP) should strike a balance between promoting growth and ensuring macroeconomic stability. “Careful consideration should be given to the sustainability of financing. The authorities should seek concessional external financing and avoid extensive substitution of domestic financing for external financing,” it explained.
In concurrence with its annual report released early last month, the current statement also notes that the pacing of public investments needs to be adjusted if scaled-up external financing on manageable terms is not forthcoming.
“Ethiopia’s public sector led development strategy has delivered robust growth and rising living standards, but is now at a crossroads. To sustain growth and employment creation, there is a need to carefully consider the balance between public and private sectors in the economy,” it indicated.
A vibrant private sector is essential to attain middle income status. “Therefore, it would be important to foster competition in areas where public enterprises enjoy monopolies, and gradually withdrawing from sectors where they crowd out the private sector,” it added.
According to the statement, the IMF Executive Board is expected to complete the 2013 Article IV consultation in September 2013.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.