Ethiopia: ‘Improve business climate’ - IMF advises Ethiopia

Addis Ababa, Ethiopia (PANA) – The current positive investor sentiment towards Ethiopia could be enhanced by reforms to improve the business climate, according to staff of the International Monetary Fund (IMF), who on Tuesday completed routine discussions with authorities in the country’s capital, Addis Ababa.

In the IMF team’s view, a more flexible exchange rate would help competitiveness while improved economic statistics would support policy making and investor confidence in Ethiopia.

“Ongoing efforts to strengthen domestic revenue collection and governance of public enterprises need to be stepped-up to mobilise domestic resources and encourage their effective use,” remarked IMF team leader Julio Escolano in a statement issued at the conclusion of the visit.

“More extensive use of public-private partnerships, private concessions, and privatization proceeds, in line with the authorities’ policies, will safeguard public resources while helping private sector development. To complement the restrictive fiscal stance, monetary policy should also be tightened,” he said.

The IMF staff team welcomed the progress in Ethiopia’s financial development and inclusion, as evidenced by the significant increase in the number of bank branches and deposits.

The team affirmed that the Ethiopian economy showed strong resilience in 2016/17 amid continued weak global prices for key exports and re-emergence of drought conditions in parts of the country. Real gross domestic product (GDP) is estimated to have increased by 9 percent in 2016/17.

“Government interventions to mitigate the social impact of the drought, in collaboration with development partners, were timely and effective, thus limiting its human cost,” Mr. Escolano noted, appreciating prudent budget execution that led to a lower-than-planned fiscal deficit, estimated at 2.5 percent of GDP.

Determined actions by the authorities to contain external imbalances led to a narrowing of the current account deficit, and restrained debt accumulation. However, exports continued to stagnate due to weak global commodity markets and delays in completion of key related projects.

According to the team’s findings, Ethiopia’s medium-term growth prospects are favourable, supported by strong private investment, completion of key supporting infrastructure projects, and rising productivity as export-oriented industries take root.

In the short term, however, the current account deficit remains high, and indebtedness and associated risks have increased.

“Until past investments in infrastructure and logistics pay off and exports take off, macroeconomic and financial policies should aim at reducing external imbalances and liabilities,” Mr. Escolano suggested.

“To achieve this rebalancing, the appropriately tight budgetary stance announced by the government should be combined with additional restraint in undertaking public investment projects, particularly those with a high borrowing component. Social needs remain large, and the staff team supports the authorities’ intention to protect pro-poor spending programme, he added.

The Executive Board of the IMF is expected to discuss the staff report for Ethiopia in November 2017.
-0- PANA AR/MA 27Sept2017

27 september 2017 08:14:28

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