*IMF Executive Board Concludes 2012 Article IV Consultation with Ethiopia i.e. the government.
Public Information Notice (PIN) No. 12/117
October 1, 2012

Background

On September 12, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Ethiopia.

Ethiopia’s macroeconomic performance in 2011/12 has been mixed. Strong, broad-based growth continues at a pace of about 7 percent and poverty reduction measured by poverty head count declined from 38.7 to 29.6 percent during the six years to 2010/11. However, inflation surged to 40 percent in August 2011, largely reflecting a combination of factors including loose monetary policy, and high global food prices but has eased to about 21 percent in June 2012 supported by a slowdown in global food and fuel price inflation and the implementation of the base money nominal anchor. Despite the continued robust increases in goods exports and remittances, the current account deteriorated in the first half of 2011/12 contrasting the surplus recorded in 2010/11 attributed to a frontloading of import of capital goods the previous year. The developments in 2011/12 largely reflect a recovery of imports of capital goods, an increase in consumer goods imports, and a weakening of the services balance due to a surge in service imports.

The federal government budget execution in 2011/12 has been tight based on a strong tax revenue increase when compared to the previous fiscal year, and a slower-than-budgeted execution of recurrent expenditure. However, the public sector (including state-owned enterprises) as a whole has been providing strong fiscal impulse given the state-owned enterprise substantial capital expenditures financed by borrowing from external sources and the Commercial Bank of Ethiopia (CBE). A rise in regional government deposits at CBE contributed to the funding. The 2012/13 budget focuses on sustaining growth, lowering inflation further, mobilizing revenue, and spending on pro-poor projects. The revenue target is within reach with the continuation of administrative efforts. Total expenditure is projected to grow slower than nominal GDP, but poverty-related spending as a share of GDP will be maintained.

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