IMF Approves US$411 Million to Ethiopia In Support To Address The Coronavirus Pandemic

Ethiopia steps up health spending with help from international monetary fund imf emergency assistance

Ethiopia as a country is seriously going through an economic breakdown which can be attributed to the coronavirus pandemic and in urgent need of an approach that will bring stability to the country’s balance of payment. In light of this, the IMF under the Rapid Financing Instrument approved the sum of US411 million for emergency assistance to the country. The country will also benefit in the debt service relief by the IMF under the Catastrophe Containment and Relief Trust. The government through its strengthening of the health sector, the adoption of a state of emergency and implementation of measures to support the economy have done their own part in containing the impact of the coronavirus.  The fund was approved by the Executive Board of the International Monetary Fund.

The coronavirus pandemic has lead to severe health risks and has weighed heavily on the country’s economy. If the pandemic is not contained, the country’s health system will be adversely put under pressure with a devastating social consequences. Recently, the fall in exports demand together with the containment measures in place is already slowing the economy and has weakened external and fiscal accounts. Government on its own part had implemented a mandatory 14-day quarantine for travelers coming into the country, provision of improved testing and containment capacity, effective epidemic response coordination and imposing a state of emergency to limit movements and gatherings thus facilitating social distancing. They also provided more revenue to strengthen the health system and to also address food security challenges in support of the poor and the most vulnerable during this period. The IMF on its own part will continue to monitor the situation in the country and will provide policy advice and financial support when needed.

According to a statement made by the Deputy Managing Director Mr. Tao Zhang, on Ethiopia he said and I quote: “Ethiopia showed good progress under the extended arrangements with the Fund, which aim to address external vulnerabilities and transition to a private sector-led growth model. The authorities remain committed to the reform program. However, the COVID-19 pandemic has had a significant adverse impact on the economy and created urgent fiscal and balance of payments needs. The authorities have moved decisively to contain the spread of the virus and manage the economic fallout from the global downturn and the needed health-related measures. A temporary widening of the budget deficit is appropriate. The immediate priority is to increase spending on health care and provide emergency assistance, including food assistance. The authorities are committed to full transparency on the spending for the emergency response and aim to conduct an ex-post audit of crisis-related spending once the crisis abates. Fiscal consolidation will need to resume after the crisis, with a focus on strengthening debt sustainability and domestic revenue mobilization. 

The National Bank of Ethiopia (NBE) has appropriately provided liquidity to banks to maintain financial stability. Once the crisis abates, monetary policy will need to be tightened significantly to achieve the single-digit inflation objective. Strong efforts are needed to address the real overvaluation of the exchange rate, allowing the exchange rate to act as a shock absorber. 

Fund emergency support under the Rapid Financing Instrument and debt relief under the Catastrophe Containment and Relief Trust would help address balance of payments pressures and create fiscal space for essential pandemic-related expenditures. Participation in the G20 debt relief initiative could provide additional resources to respond to the pandemic.”

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