Editorial | Aug 17,2019
Ethiopia has requested 415 million dollars from the International Monetary Fund (IMF) through the Rapid Disbursement Instrument Facility without ex-post conditionality. The Ministry of Finance requested the funding in response to the economic impact of Novel Coronavirus (COVID-19).
Through this facility, the loan will be will be paid back over 10 years at an interest rate of zero without any conditions.
The IMF has allocated 11.5 billion dollars for 32 Sub-Saharan African countries with low rapid and concessional access to financial assistance and those facing urgent budget needs to fight the virus through this facility. The IMF is also set to disburse 300 million dollars in debt relief support. On a global scale, the IMF has availed debt relief for 25 countries including Burkina Faso, Chad, Rwanda, Gabon, Madagascar, Niger, Senegal and Togo.
Together with the World Bank, the IMF is also making a case for debt relief from official bilateral creditors for those low-income countries that can make their case, according to Abebe Amero Selassie, director of the IMF for Africa, in a web press briefing on Wednesday.
"Aside from the current underway supports, the IMF is seeking resources to avail grants to countries with debt service payments that fail for the remaining time of the year," he said.
Ethiopia is also one of the countries that have requested debt relief from the IMF with an outstanding debt of 11 million dollars. Still, the country was not included under the 25 countries that have been granted debt relief.
"Although the amount may not look substantial," said Eyob Tekalign (PhD), state minister for Finance, "we have asked for debt relief alongside the 415 million dollar emergency fund."
“Ethiopia will get debt relief, and the Rapid Disbursement Facility request will process it,” he added.
The IMF has slashed the prospective growth of Ethiopia for the current fiscal year by half from its previous projection of 6.2pc. In the World Economic Outlook that was issued last week, the IMF stated the impact of Novel Coronavirus (COVID-19) is appearing through costs to humanity worldwide, and the protective actions have severely impacted the economic ecosystem.
The economic impacts will be considerable. By the estimates of a study by Cepehus Growth Capital, an Ethiopian private equity firm, the growth will be 2.5 percentage points lower next year, falling to five percent. Three weeks ago, Ethiopia requested 1.6 billion dollars claiming humanitarian assistance from the Development Assistance Group (DAG).
The grant will be utilised for an emergency response in the health sector, as well as for the WASH programme. After the pandemic set foot in Ethiopia, it shook the foundation of the economy. The economic fallout is forcing the government to issue drastic measures, and regulations that were once unthinkable are being adopted.
In the last few weeks, the government has issued the first stimulus package, which includes tax exemptions and access to currency for importers of materials to be used in the prevention and containment of COVID-19. NBE availed 15 billion Br in support of private banks to allow them to provide debt relief and refinancing for customers in need.
An emergency response plan will require increased spending, mostly for the health sector. Some of this is to be financed through the reallocation of capital spending, though it has its own cost to unemployment. In the best-case scenario, the Ministry of Health estimates the minimum expenditure for the prevention of the pandemic is expected to be five billion Br, which can go up to 19 billion Br under the worst-case scenario.
Based on "limited virus spread scenario," and if the stimulus measures seen in other countries were to serve as a guide, Cepheus Capital estimates that fiscal resources needed for public relief packages could reach 90 billion Br, 2.3pc of GDP, and that central bank liquidity interventions of around 47 billion Br, which is 1.2pc of GDP, may be required.
The study also estimates that the impact of the pandemic would be at the higher cap of one percentage point of GDP for the current fiscal year as two-thirds of the fiscal year is essentially unaffected.
In the first quarter of the fiscal year, the deficit in the overall balance of payments was about 870 million dollars compared to the 69.1-million-dollar deficit a year ago. The net balance of payments impact will be close to 1.5 billion dollars at the beginning of 2021 due to the decline of export remittances and foreign direct investment.
At the end of last year, the IMF agreed to 2.9 billion dollars for Ethiopia to finance its economic reform package. The loan is the largest ever, with 700pc more than Ethiopia’s quota of 300.7 million dollars.
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