IMF approves US$3bn program to support transition to private sector led economy in Ethiopia

ETHIOPIA — The IMF has approved a program for Ethiopia of almost US$3 billion which is aimed at supporting the Ethiopian government’s own Homegrown Economic Reform Program.

The program is designed to eliminate macroeconomic imbalances and lay the foundation for sustainable and inclusive growth while at the same creating a path for the economy to transition away from being public sector-led to one that is driven by the private sector.

Ethiopian authorities have developed their very own ambitious Homegrown Economic Reform Plan tailored to the country’s needs and preferences.

They have engaged in wide-ranging outreach to discuss the economy’s future with key stakeholders and have taken important initial steps to implement reforms.

The IMF on the other hand, has approved the Ethiopian authorities’ request for an almost US$3 billion loan under its Extended Credit Facility and Extended Fund Facility to back the Homegrown Economic Reform Plan.

As well as helping to address the foreign exchange shortage, the program will also aim to reduce debt vulnerabilities.

Other key objectives include reforming the financial sector and boosting revenue mobilization which will be supported by the provision of technical assistance and training.

The program aims to build on the authorities’ actions by ensuring public sector borrowing is in line with lower debt levels and stronger oversight of state-owned enterprises.

Monetary policy will aim to bring inflation into single digits. Exchange rate reform will address foreign exchange shortages and increase exchange rate flexibility and, combined with structural reform, will further improve export competitiveness.

The program also features revenue reforms and efforts to increase the efficiency of public investment and will ensure that infrastructure and social spending needs are met while maintaining sustainable debt levels.

Fiscal policy entailed in the program is designed to create the space for more spending to tackle poverty.

Expenditures on the rural and urban poor will be increased to ensure that sufficient resources are dedicated to support the Productive Safety Net Program, one of the largest and most successful social safety net programs in Africa.

IMF said that the government of Ethiopia’s investment in infrastructure and education has laid a good foundation for the transition to private sector-led growth.

The multilateral institution however notes that to generate returns from past investments, reforms are needed.

These include resolving the foreign exchange shortage, improving the business environment that will boost investment and accelerate the economy’s transformation.

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