The Economy in Pictures - Ethiopia

For Discussion-Do you agree with the IMF analysis of the recent developments of the Ethiopian economy?;

Challenges: While the economic outlook seems favorable with strong macro policy implementation, there are significant risks. There is very little margin for policy slippages if economic stability is to be maintained, adverse weather may recur, structural bottlenecks and constraints persist, and the environment is not yet fully conducive to private sector-led growth. A critical challenge for Ethiopia is to strike a judicious balance between demand dampening measures and growth-enhancing structural reforms.

The authorities’ views: The authorities give macroeconomic stability a high priority, though they reiterate the need to maintain the current growth momentum. They shared staff concerns about inflation and low official international reserves and recognized the adverse impact they have, particularly on the urban poor and on business confidence, while the authorities favor a more gradual approach in some policy areas (in terms of monetary tightening and exchange rate flexibility) than the staff.

Staff views: Staff encouraged the authorities to make forceful fiscal adjustments (some new revenue measures and cuts in nonpriority expenditures) and support them with a tighter monetary policy and greater exchange rate flexibility to ease demand pressures and start to push inflation downward. They also stressed the importance of addressing emerging supply constraints and the limited implementation and absorptive capacities of the economy, and of establishing a sound, dynamic, and competitive financial sector.