May 21, 2024

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Ethiopia: IMF Wary of ‘Elevated’ Prospect of Violence in Ethiopia

3 min read

The Fund forecasts 6.2 percent 2024 growth rate for Ethiopian economy

The International Monetary Fund (IMF) fears the security situation in Ethiopia still risks backpedaling, despite the peace agreement that ended the northern Ethiopia war a year and a half ago.

“Social tensions and the prospect of further violence remain elevated in Ethiopia despite a peace deal,” reads IMF’s Sub-Saharan regional 2024 outlook report, dubbed ‘A Tepid and Pricey Recovery.’ The report was released while this year’s IMF and World Bank Spring Meetings kicked off in Washington this week.

Security risks in the region, spiraled by terrorist attacks, are high in the Horn, according to the report.

“Moreover, the intensifying conflict in Sudan could further harm the economy and humanitarian conditions in nearby countries,” it reads.

The Fund has forecasted a 6.2 percent economic growth rate for Ethiopia in 2024, down a full percentage point from last year’s outlook. The IMF forecasts 6.5 percent growth for 2025.

The 2024 forecast is significantly lower than the Ethiopian government’s expectations of 7.9 percent growth, but is still a full 3.2 percentage points higher than the global average.

The Fund foresees inflation rates in Ethiopia to drop to 18.2 percent in 2025, almost 10 percentage points lower than the 26 percent currently reported by the government statistics bureau. Ethiopia’s current account deficit, which sits at 2.9 percent, is expected to drop to 1.7 percent in 2025, according to the report.

However, it states that Ethiopia remains gripped by budget deficits, trade imbalance and external debt pressures. The report also mentions Ethiopia’s failed Eurobond payment from December.

“Over the past decade, the fiscal position of many Sub-Saharan African countries has deteriorated, a trend exacerbated by repeated shocks and the ensuing demand for fiscal support. This has led to heightened debt vulnerabilities across the region. Policy efforts are now focusing on rebuilding fiscal buffers and reducing debt to strengthen borrowing capacity. Some countries face more urgency for fiscal tightening due to an acute funding squeeze, driven by rising debt service costs and limited access to financing. Together with currency depreciations, this has intensified funding constraints. For instance, Ethiopia became the latest country in the region to default, failing to make a Eurobond coupon payment in December 2023,” it reads.

Abebe Aemro Selassie, director of the IMF Africa Department, skipped over questions regarding Ethiopia during a press briefing on Friday. Abebe, an Ethiopian citizen, often leaves queries regarding Ethiopia unanswered during press briefings.

The federal government is still anxiously awaiting debt restructuring and a bailout from the IMF to offset forex shortages and finance development and humanitarian and post-war recovery efforts.

A two-week visit to Addis Ababa from an IMF team concluded earlier this month without a staff-level agreement for a financial package.

“Building on earlier discussions, the staff team made substantial progress towards establishing how the IMF could support the authorities’ economic program. Discussions will continue at the IMF/World Bank Spring Meetings later this month ,” reads an IMF statement issued following the visit.

Finance Minister Ahmed Shide and Mamo Mihretu, governor of the National Bank of Ethiopia, were part of discussions with World Bank and IMF officials, including Managing Director Kristalina Georgieva, on the sidelines of the meetings which kicked off in Washington earlier this week.

“IMF and World Bank officials have agreed to enable the implementation of Ethiopia’s reform efforts,” reads a statement from the Ministry of Finance released on Friday.

The statement, however, does not indicate whether the IMF has approved a financial package for Ethiopia.

By Reporter.

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