IMF Executive Board Approves US$50 Million to Ethiopia

25 January, 2009

Press Release - The Executive Board of the International Monetary Fund (IMF) approved today a disbursement in an amount equivalent to SDR 33.425 million (about US$50 million) to the Federal Democratic Republic of Ethiopia under the rapid-access component of the Exogenous Shocks Facility (ESF).

In September 2008, the Executive Board approved modifications to the ESF, which make it faster to access, easier and more flexible to use, and capable of providing more financing. Those modifications came info effect in late November 2008. The disbursement to Ethiopia under the rapid-access component of the ESF helps mitigate the impact of higher fuel, food and fertilizer prices experienced by Ethiopia on its balance of payments in 2008.

Following the Executive Board's discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, stated:

"Ethiopia's economy has been adversely affected by high commodity prices. Last year's steep increases in international prices of fuel, fertilizers, and cereals have considerably weakened Ethiopia's international reserves position and contributed to inflationary pressure. The more recent reversal of the commodity price hikes should help Ethiopia to replenish its international reserves and lower inflation. However, balance of payments pressures are likely to remain in the face of the severe global economic slowdown.

"The Ethiopian authorities have adopted an appropriate macroeconomic policy package to address the strains on the balance of payments and to reduce inflation. The package includes domestic fuel price adjustments, substantial fiscal and monetary policy tightening, and measures to protect vulnerable groups. To ensure a tight fiscal stance, the government is committed to avoiding net domestic financing for the current fiscal year and improving control over public enterprise borrowing. Monetary growth is to be slowed to under 20 percent.

"The authorities are urged to continue to implement their adjustment policies forcefully. This would enhance the basis for sustainable economic growth. In the current global economic environment, there are significant risks that exports, remittances, and foreign direct investment may fall short of expectations. If this proves to be the case, additional policy tightening will be needed to preserve the viability of the balance of payments.

"Together with stepped-up assistance from Ethiopia's other international partners, the IMF's financial support under the Exogenous Shocks Facility will help to mitigate the risk of an erosion of Ethiopia's gains in poverty reduction in recent years," Mr. Kato said.