IMF forecasted the Ethiopian economy may grow in 2010/11 by 7.5% ( as opposed to the 11.4% government estimate) in a statement issued yesterday.
The statement was issued on the conclusion of the visit by IMF mission following the visit and discussions that took place from May 18-30.
According to the statement issued by IMF External Relations department on Tuesday, May 31, 2011, the mission concluded that:
Strong growth has continued in 2010/11 that the mission estimates at 7.5 percent (compared to an official estimate of 11.4 percent).
The Statement commended the performance in raising Exports and fiscal revenues.
Yet, it noted that ‘the principal macroeconomic challenge is surging inflation’. Though the ‘rising international commodity prices’ contributed to the inflation, IMF believes ‘excessive monetary growth has been the principal cause.’
IMF expects growth to be even slower in the next fiscal year, 2011/12, ‘at about 6 percent, on account of high inflation, restrictions on private bank lending, and a more difficult business environment.’
IMF urged the government
to consider measures to improve the business climate and reduce the costs of trade,… to reconsider aspects of the recent NBE directive transferring resources from private banks to the Development Bank, in order to lessen its disruptive impact on the banking system,….to reinforce financial sector supervision, continue implementation of the tax and customs reform plans, strengthen debt management, as well as efforts to improve the national accounts statistics.
It should be noted that in the past five or six years IMF usually forecasts a 7% growth at the beginning of the year, then move up its estimate at mid-year. However, its estimate has rarely been below 8 and 9% at this time of the year. Thus, it seems, based on past experiences, the GDP growth is unlikely to be above 9%, at best, by year end.
Read the IMF’s May 31/2011 Statement below.
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Statement by an IMF Staff Mission on the 2011 Article IV Consultation with Ethiopia
Press Release No. 11/207
May 31, 2011
An International Monetary Fund (IMF) mission led by Mr. Paul Mathieu visited Addis Ababa May 18-30 to conduct discussions for the 2011 Article IV Consultation. The mission met with Prime Minister Meles Zenawi, Minister of Finance and Economic Development Sufian Ahmed, and Governor of the National Bank of Ethiopia (NBE) Teklewold Atnafu, other senior officials, as well representatives of the private sector, the international community, and civil society.
At its conclusion, the mission issued the following statement:
“Strong growth has continued in 2010/11 that the mission estimates at 7.5 percent (compared to an official estimate of 11.4 percent). Exports and fiscal revenues are doing well. The principal macroeconomic challenge is surging inflation, which reached 30 percent in April. While this partly reflects rising international commodity prices, excessive monetary growth has been the principal cause. Broad money has risen 35 percent at end March at the same time as rapid expansion of the central bank’s balance sheet (base money). The budget saw a domestic financing surplus in the first half of 2010/11, but there was significant recourse to central bank financing, as the Treasury bill market collapsed, reflecting highly negative interest rates. Going forward, the mission encouraged the government to implement the base money nominal anchor policy, adopted under the 2010 Exogenous Shocks Facility-supported program, accompanied by higher interest rates and exchange rate flexibility to control inflation.
“The mission sees lower growth for 2011/12, at about 6 percent, on account of high inflation, restrictions on private bank lending, and a more difficult business environment. The mission welcomes the decision to lift most price controls and urged the government to consider measures to improve the business climate and reduce the costs of trade.
“The growth and investment objectives of the new five-year Growth and Transformation Plan (GTP) are ambitious. The mission urged the authorities to the pace implementation of the plan to avoid any further overheating of the economy. Success will also hinge on allowing room for the private sector to thrive and maintaining a low risk of debt distress. In this regard, it is critical to put in place the policies to promote a monetization and financial deepening process by quickly achieving market clearing interest rates that are positive in real terms. The mission urged the authorities to reconsider aspects of the recent NBE directive transferring resources from private banks to the Development Bank, in order to lessen its disruptive impact on the banking system.
“Going forward the authorities are encouraged to reinforce financial sector supervision, continue implementation of the tax and customs reform plans, strengthen debt management, as well as efforts to improve the national accounts statistics.
“The IMF Executive Board is expected to complete the 2011 Article IV consultation in late August 2011.”
IMF EXTERNAL RELATIONS DEPARTMENT
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