IMF approves $30 million loan

The International Monetary Fund (IMF) has granted Ethiopia access to US $30 million to help fight poverty. The IMF's executive board approved a US $20 million loan to “help mitigate the impact on the balance of payments of a continued deterioration of the terms of trade”. The money was announced as part of the second review of Ethiopia’s performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. A further US $10 million was made available – totalling US $30 million - by the IMF after it granted a waiver to the National Bank of Ethiopia. Shigemitsu Sugisaki, deputy Managing Director at the Washington-based IMF, said in a statement that Ethiopia’s performance under the PRGF had been “commendable”. The PRGF – part of the IMF’s fight against poverty in the third world - was approved in March last year and totals US $109 million. So far Ethiopia has borrowed US $44 million. “Most of the performance criteria and benchmarks were observed,” Sugisaki said. He added that despite a poor world trade climate, the real Gross Domestic Product (GDP) for Ethiopia rose to an estimated 7.9 percent – outstripping previous estimates. Low inflation and bumper cereal crops, coupled with large inflows of food aid, also helped drive down the country’s current account deficit to 4.2 percent of GDP. “The economic situation remains fragile, but the authorities are committed to consolidating the macroeconomic gains and pushing ahead with their reform programme,” Sugisaki added. According to the statement, he praised the government for switching its expenditure from defence to social sectors and poverty alleviation. Tax reforms and the move towards market-determined exchange and interest rates were also welcomed by the IMF. Sugisaki predicted that the policies that have been implemented “should sustain economic performance, despite the continuing difficult world economic environment". He also predicted the GDP would drop slightly to around 6.2 percent, but that the overall fiscal deficit including all grants and special programmes would be limited to just under 10 percent. A major reform of Ethiopia’s largest state-owned bank, the Commercial Bank of Ethiopia, is also to be implemented to improve its financial situation. The bank is still reeling after dozens of senior executives were arrested on charges of corruption. The loans are repayable over 10 years, with a five-and-a-half year grace period, and with an interest rate of 0.5 percent.