By Tesfa-Alem Tekle
December 22, 2019
(ADDIS ABABA) – The International Monetary Fund (IMF) on Saturday approved $ 2.9 billion in support for Ethiopia.
The grant was approved by the Executive Board of the International Monetary Fund to support Ethiopia’s domestic economic reform program.
The three-year financing package will support the implementation of the authorities’ Homegrown Economic Reform Program.
It will further have a significant impact on sustaining Ethiopia’s global transformation.
The Fund-supported program aims to help authorities reduce external imbalances, contain debt vulnerabilities, lift financial repression, increase domestic resource mobilization which will also help devote adequate resources to pro-poor spending.
Ethiopia’s economic reforms are said to focus on addressing foreign currency shortages and adjusting the volatile exchange rate system.
“The program aims to address foreign exchange shortages and external imbalances; reform state-owned enterprises (SOEs); safeguard financial stability; and strengthen domestic revenue mobilization” part of IMF’s statement reads.
It also targets to help in creating jobs for unemployed youth in the country, and to encourage private sector investment.
In addition, the financial institution says it will help to reduce poverty, provide necessary infrastructure, encourage private sector participation, undertake development of low-income community centers and modernize its monetary policy framework.
“A decade of rapid growth, underpinned by strong policies, has supported a reduction in poverty and improved living standards in Ethiopia” said David Lipton, First Deputy Managing Director and Acting Chair.
“However, the public investment-driven growth model has reached its limits. The authorities have prepared a Homegrown Economic Reform Plan to address macroeconomic imbalances, reduce external and debt vulnerabilities, phase out financial repression, and lay the foundation for private sector-led growth” Lipton added.
“Financial arrangement with the Fund will support the authorities’ plan, helping to catalyze concessional financing from other development partners,” he said adding “Monetary tightening and reforms will help rein in inflation, facilitate credit to the private sector, and strengthen competitiveness”
According to IMF, greater exchange rate flexibility, supported by tighter monetary policy, will durably address foreign exchange shortages and narrow the spread between the official and parallel market rates. Further efforts are needed to modernize the monetary policy framework and deepen financial inclusion.
Fiscal consolidation and reforms aim to reduce debt vulnerabilities, increase revenue, and strengthen expenditure efficiency while protecting social and development spending.
Improving the financial positions of SOEs and strengthening their governance and oversight will also be critical to ensuring debt and financial stability.
“With strong ownership and full implementation of reforms, the authorities’ economic plan should eventually improve macroeconomic outcomes and lower external vulnerabilities. High priority is placed on removing constraints to private investment and improving the business climate, setting the stage for an acceleration in private sector-led growth” Lipton added.
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