What is the difference between the World Bank and the IMF [International Monetary Fund]? Well, the quick answer would be not much, except for the fact that one is a development lender and the other is a financial firefighter.
Even a historical report reveals that John Maynard Keynes, a founding expert of the two institutions and considered by many the most brilliant economist of the twentieth century, admitted at the inaugural meeting of the IMF that he was confused by the names: he thought the Fund should be called a bank, and the Bank should be called a fund.
It is not only the Ethiopians themselves or the people living in Ethiopia who benefit from supporting Ethiopia’s political and economic stability. Ethiopia is the central nation in East Africa, described by experts as the anchor for peace and stability in the region. It is in the interest of world powers to see a stable Ethiopia, as they have a growing economic and political interest in the region, which has more than its fair share of troubles and tensions.
Recent developments have proven Ethiopia’s increasing influence and role as a nucleus for the efforts towards economic and political integration. Ethiopia’s unrivaled prominent role in the implementation of the objectives of such regional organizations as AU, IGAD and NBI is well evidenced. In addition to the political will, Ethiopia’s commitments to economic development initiatives and projects like GERD and LAPSSET Corridor is pushing the East African nations to rapid economic integration and enabling them to complement each other with resources sharing.
HAD it not been for the lingering internecine conflict, the COVID pandemic and the persistent macro-economic challenges and other negative circumstances, Ethiopia would have scored far more achievements in the regional level during the last six years of reform. Despite the above mentioned challenges, the nation is scoring impressive record of economic growth proven by such international Agencies like the World Bank and IMF.
Likewise, Ethiopia’s economy has bright prospect for growth for the coming years. According to the International Monetary Fund, six out of the top-ten performing economies worldwide in 2024 will be from Sub-Saharan Africa. And Ethiopia is ranked 2nd in Africa with the highest GDP growth forecast in 2024 at 6.2% after Ivory Coast at 6.6%.
Being the most populated and covering one of biggest arable land mass size in East Africa and fresh water resources, Ethiopia has a valid prospect to emerge the economic power house of the sub region in a relatively short period of time. The government is envisioned to place the nation in the list middle income countries in a few years’ time, and development activities are going ahead to meet this target.
It is incumbent up on the international community, to support Ethiopia’s development efforts through bilateral and multilateral cooperation agreements. Donor agencies like IMF and World Bank should provide a timely support to Ethiopian economic reform and development agenda. The economic reform agenda is not an adaptation from outside rather it is an original plan developed by Ethiopian experts based the economic realities with in the nation.
In other words the reform agenda is tailored to the country’s needs and preferences. Thus it worth investing in and being partner in such reform plans, as they have already bearing fruits and making the nation in consistent track of economic progress with impressive rate figures far more than the world’s average.
The main objective of the economic reform agenda is to sustain the economic growth through creating an economic environment supportive of higher private investment involvement and structural transformation. It encompasses three key pillars at the macro-financial, structural, and sectorial levels.
The reform agenda identified five key productive sectors that Ethiopia has great potentials, and these are agriculture, manufacturing, mining, tourism, ICT & creative industries. These sectors are areas where the country’s limited capital resources mainly directed and attractive policy incentives are being introduced to bring the fundamental transformation of the economy, and maximum sustainable returns for investment of the limited capital resources. The agenda also envisaged promoting the role the private sector in the economy and poverty reduction.
At the outset of its implementation in 2020, the first phase of home grown economic reform agenda, HGER which run for three years enjoyed a generous support of the IMF, with provision of 3 billion US Dollars. The support was effectively utilized, enabling the HEGR implementation to bear fruits that are well evidenced in growth in productivity and performance of various sectors.
Agricultural production and productivity increased with impressive progress, and Ethiopia has now found itself in the list of wheat exporting countries. The activities of the private sector in the economy has shown much improvement over the last three years in terms of its contributions to GDP, access to the financial sources, creating jobs and revenues.
Reflecting on the resounding success of HGER, Ethiopian Premier said: “Despite many man-made and natural disasters, Ethiopia witnessed many successes as a result of the implementation of the first phase Homegrown Economic Reform plan.” He particularly mentioned the maximum efforts exerted to improve the private sector landscape and the tangible results registered in creating vibrant private sector that is essential for continued innovation, job creation and sustainable development.
The Ethiopian leadership has proven its commitment to liberalizing the economy to promote the local private sector’s role and to encourage involvement foreign investors, by taking decisions that were unthinkable a few years earlier. Big investment sectors that have long been reserved to public sector now open to the private sector. Foreign companies are already actively working in the lucrative telecom industry. Similarly now, it is only matter of time before we hear news about the opening of foreign bank offices here in Ethiopia. The nation is workings its way to achieve membership of World Trade Organization, WTO.
The impressive record of economic performance during HGER I against all the odds is a compelling reasons for international finance institution like IMF and World Bank to provide Ethiopia with another financial package for the implementation of the second phase of home grown [HGER II] which commenced this fiscal year and run for another three years until 2026.
At the time of the release of the HGER II last year the IMF representative who was on working visit in Addis said: “The IMF team welcomes the authorities’ Homegrown Economic Reform Agenda (HGER II), an ambitious reform program that aims to address key macroeconomic vulnerabilities and unleash Ethiopia’s considerable economic potential.”
While the Ethiopian government has been a marathon negotiation to secure a deal with IMF, it has already signed a financing deal with its twin sister, the World Bank. The government and the World Bank signed early this month financing agreements amounting 1.72 billion USD in the form of credits and grants, for the implementation of six projects aimed at driving sustainable development and inclusive growth in the country. The projects are expected to contribute for poverty reduction and job creation, which is among expected outcomes of the home grown economic reform.
The government has also made impressive progress in returning the country to normalcy after the devastating conflict in the north of the country. Work is underway to establish transitional justice and reach a national consensus on key national issues through national dialogue.
As mentioned at the outset, and in light of the agreement reached with the World Bank, it is very likely that the Ethiopian government will soon end its ongoing negotiations with IMF officials by reaching an agreement that fulfils all or part of the loan it has requested. One thing is certain: IMF directors and the governments behind them are well aware of the far-reaching importance of immediate support for Ethiopia’s economic reforms.
BY SOLOMON WASSIHUN
THE ETHIOPIAN HERALD TUESDAY 30 APRIL 2024
