After a recent Article IV consultation with Ethiopia the International Monetary Fund (IMF) assessed that debt from external sources continues to be a moderate risk. However, because of an increase in the nation’s budget deficit and foreign debt the county is more vulnerable because the debt is not sustainable in the near future. In its yearly report released on October 4 based on discussions with top government officials including Prime Minister Hailemariam Desalegn the IMF staff called for Ethiopia to do more to reduce the external imbalance. They argued that the government bodies’ goal to increase and diversify exports was a positive step that would create the most growth. However, while export oriented policies are bearing fruit, there is a need to contain imports. Directors stressed that a tighter fiscal stance, while protecting the vulnerable, and a more flexible exchange rate would reduce external vulnerabilities and the buildup of foreign reserves.
Directors supported the authorities’ goal to mobilize more domestic revenue to finance the development strategy and reduce the savings investment imbalance. They suggested that the nation could increase revenue by introducing property taxes, reducing exemptions, and making administrative reforms to increase taxpayer compliance.
The IMF report stated that Ethiopia’s economy had been adversely affected by a severe drought and the weak global environment during the past year. As a result, output growth is estimated to have slowed down in 2015/16 to 6.5 percent. “The slowdown was mitigated by effective and timely policy responses to the drought, and buoyant industrial and services sectors,” it read.
export revenue stagnated due to weak international commodity prices, despite increases in export volumes and diversification to new export markets
It stated that export revenue stagnated due to weak international commodity prices, despite increases in export volumes and diversification to new export markets.
Remittances and FDI posted strong growth, helping to limit the deterioration of the external position. The foreign reserve buffer is 1.9 months of import coverage.
The 2015/16 foreign borrowing requirement of the non-financial public sector is estimated at 5 percent of GDP, a significant reduction compared to the recent past. Public and publicly-guaranteed debt is estimated to have been 54.2 percent of GDP in June 2016, of which 30.2 percent of GDP corresponds to external debt.
Over the medium-term, growth is projected to recover to within the 7.3-7.5 percent range, reflecting the growth-oriented reforms envisaged in the recently adopted second Growth and Transformation Plan (GTP II).
Directors emphasized the importance of accurate, timely, and comprehensive data for the assessment of macroeconomic developments and effective policy responses. They urged the authorities to strengthen efforts to address data weaknesses, gaps, and delays, particularly on national accounts and public sector financial reporting, as well as to increase financial sector information.
In the statement the IMF disclosed that the country’s gross domestic product (GDP) at current market prices is 1.45 trillion birr for 2015/16 fiscal year, an increase from 1.23 trillion birr a year ago.
The report also stated that the gross domestic savings decreased compared with the preceding year. It added that the gross domestic savings stood at 18.4 percent of the GDP in the 2015/16 fiscal year. It was 21.8 percent in the 2014/15 fiscal year and 20.5 percent in 2013/14 fiscal year.
The gross domestic investment was 39.7 percent of the GDP which is a slight 0.4 percent increase from a year ago.
with the ratio of tax to GDP was virtually unchanged at a 0.1 percent increase from the 2015/16 fiscal year as it stood at 13.5 percent during the 2015/16 fiscal year.