Via IMF (Den Internationale Valutafond)

IMF emergency funds will support imports of essential health supplies such as personal protective equipment (photo: Giulia Paravincini/Reuters?Newscom)

IMF emergency funds will support imports of essential health supplies such as personal protective equipment (photo: Giulia Paravincini/Reuters?Newscom)

Ethiopia Steps Up Health Spending With Help From IMF Emergency Assistance

May 6, 2020

The IMF has approved $411 million in emergency assistance for
Ethiopia to help fight the coronavirus pandemic in the east African
country. It also approved Ethiopia’s request for a suspension of debt
service payments of about $12 million to the IMF under the IMF’s
Catastrophe Containment and Relief Trust for poor countries.

In an interview with IMF Country Focus, Fikadu Digafe
Huriso, Vice Governor and Chief Economist of the National Bank of
Ethiopia describes the impact of COVID-19 on his country, and the
measures which Ethiopia is taking to combat the pandemic.

What has been the impact of COVID-19 on Ethiopia? And which sectors have suffered the most?

The most direct economic impact, so far, has been on the service
sector, particularly transport, travel, and hospitality services. The
pandemic has severely affected passenger transport (both air and land), which, in turn, has shaken the hospitality industry resulting in
closures of many big hotels.

The Jobs Creation Commission has estimated that close to 1.4 million
workers will be affected by the pandemic, particularly in the service
and manufacturing sectors. Some industrial parks have already laid off
workers due to a slump in global demand.

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As more and more people continue to become infected, we expect the
impact on health resources and on the fiscal sector to grow. In addition, a
number of studies suggest that disruptions in supply chains will affect
the most vulnerable, especially those engaged in informal sectors, as
their earnings and access to food will be severely affected. 

What measures have the authorities taken so far?

On April 8, 2020, the federal government of Ethiopia
declared a state of emergency, and several measures related to social
distancing and city transport came into effect. On the economic front,
a number of fiscal, monetary, and sectoral measures were introduced:

Fiscal Measures

• A Birr 5bn (around $150 million) preliminary stimulus package

• The removal of import taxes on COVID-19 related items

• Faster value-added tax refunds for businesses

Monetary Measures

• Birr 21bn (around $630 million) support for banks to address the
expected liquidity shortage from expected lower deposits and loan
collection, and to make available working capital for sectors
impacted by the COVID-19 pandemic

• Priority access to foreign exchange importers and producers of COVID-19-related goods

• The raising of mobile money transfer limits

• The relaxing of the Central Bank’s non-performing loan directive
to allow banks to reschedule loan payments for highly affected
sectors like horticulture, hotels, and tourism among others

Sectoral Measures

• The removal of minimum export flower prices

• Stronger enforcement measures against price gouging

Ethiopia will have access to around US$411 million in emergency
funding, how will this be used?

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The emergency funds will support two broad areas. First, it will
support the import of much-needed essential health supplies such as
personal protective equipment (sanitizers, gloves, masks etc) and
intensive care equipment like ventilators. The funding will also
support communication on health issues as combating COVID-19 will require a lot
of advocacy work to ensure that people stick to prevention

Second, the resources will be used to ensure an adequate supply of
essential goods such as food items (like wheat and edible oil) to aid the
vulnerable. Although it will be challenging to implement large-scale
social intervention to combat job losses and aid the informal sector,
it is important to ensure that those in extreme poverty have access to
basic items to survive.

The emergency financing will be useful to offset foreign
exchange losses and enable the government to finance the importation of
basic commodities including food and fuel. The emergency financing will also
help ease pressure on balance of payments that could arise from
unplanned COVID-19-related imports.

How will this financing be used to alleviate the impact of the

After the pandemic has subsided, there will be a need to revive severely-affected sectors. This can be achieved by providing low-cost lending and rescheduling loans to various enterprises whose incomes have been severely affected, enabling them to revive their businesses.

It will be important to encourage spending by ensuring the supply of adequate liquidity to the financial system. This measure has to be supplemented by adequate foreign exchange resources to revitalize both imports and exports.

In addition, some fiscal incentives, such as tax relief, can be targeted to firms to strengthen their balance sheet, which will, in turn, induce them to hire. This will help ease the impact on unemployment caused by a slowdown in businesses, especially in the services and manufacturing sectors.

The funds can also be used to scale up existing rural and urban safety net programs, and to avoid an increase in the number of people sliding into absolute poverty.

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