first quarter 2020 ethiopia quarterly macroeconomic review ... · macro research ethiopia research...

Disclaimer: This report represents solely the views, analysis, and judgement of the Cepheus research team and does not necessarily reflect the views or opinions of the Fund’s Managing Partners, Advisors, or Investors.

SUMMARY: Recent Developments and Year-Ahead Outlook

With the corona pandemic entering Ethiopia in March 2020, macroeconomic policies and priorities this past quarter have shifted sharply towards emergency economic measures that support large-scale public health interventions and limit damage to the real economy. Encouragingly, the corona virus spread in Ethiopia has so far been limited, with around 300 cases and 5 deaths as of mid-May and the lowest reported count among the world’s most populous nations. Looking ahead, as the Government’s disease prevention work is quite extensive and being intensified even further, we continue to expect that the current ‘limited virus spread scenario’ will remain for the period ahead. On this basis, we still see the most adverse economic shocks largely confined to four sub-sectors (hospitality, exports, manufacturers, and banks) whose weight in the Ethiopian economy is much lower than is the case in most peer countries. Moreover, as a large economic stimulus package is now in place and substantial foreign assistance (including debt relief) likely forthcoming, we think the overall negative macro impacts will not be as severe as may have been initially anticipated under some worst-case scenarios.

Recent Developments:1

Growth and Activity Indicators: For the period up to end-March 2020, activity indicators were largely positive and suggested a strong growth outturn for the fiscal year prior to the onset of the Corona virus. In particular, a sampling of economic activity indicators as of March 2020 showed 7 percent real growth in tax collections (26 percent in nominal terms), 4 percent real growth in government capital expenditure (22 percent in nominal terms), 5 percent growth in fuel consumption, 14 percent real growth in bank lending, 20 percent real growth in ECX commodity trades, 33 percent growth in industrial park exports, and 26 percent growth in industrial park employment. In contrast to the above, areas that showed weakness included electricity power generation (down 8 percent), FDI inflows (down 25 percent) and tourist arrivals (down 4 percent even as of end-March 2020). As trends in tax collections and bank lending often do well in capturing the pulse of on-going economic activity, and given the already registered agricultural growth of more than 4 percent from the end-2019 harvest, a high single-digit growth outturn was a likely and realistic prospect based on the first nine months of the fiscal year.

1 This section on recent developments covers activity to end-March or end-April and is thus largely excluding Corona-related impacts. See next section for the outlook in Q2 2020 and beyond.

Quarterly Macroeconomic ReviewFirst Quarter 2020

Macro ResearchEthiopia

RESEARCH & ANALYTICS

May 20, 2020

[email protected]



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Investment: Indicators of investment activity just prior to the corona outbreak were somewhat mixed, with negative outturns in some areas such as FDI but positive (though declining) growth rates in other areas. The main weak area continued to be seen in FDI inflows, which were down about 25 percent in the first half of the fiscal year vs year-ago levels ($1.8bn vs $1.4bn). Other investment indicators showed growth in areas such as capital goods imports (up 5 percent excluding lumpy aircraft imports), state enterprise borrowing (up 12 percent and indicative of SOE capital expenditures), and in government capital expenditure, which reached Birr 52bn in the first six months of the fiscal year, or growth of 22 percent vs same period last year. Overall, considering that FDI is only around 10 percent of total investment, the data suggest that aggregate investment was likely growing moderately in nominal terms but shrinking somewhat relative to GDP.

Inflation: Contrary to our expectations, inflation has not declined since the start of 2020 and stood at 22.9 percent (year-on-year) as of April 2020. Inflation has now remained above 20 percent for six consecutive months. Moreover, though previously confined mostly to food items (particularly cereal crops), it has now also spread to non-food items (e.g. beverages, transport) and to services (housing and utilities)—both of which are showing inflation of near 20 percent. Looking into the latest monthly data from April 2020, three specific line-items with a combined weight of nearly 50 percent are the biggest contributors, mainly cereal crops (prices up 31 percent), vegetables (up 24 percent), and housing/utilities (up 26 percent); had these three items shown no price increases, overall inflation would have been only 9.9 percent. In some areas, administrative policy changes are contributing to inflation: for example, excise taxes on beer raised beverages inflation by 20 percent in just the past two months and by 27 percent year-on-year; electricity bill adjustments are still feeding into higher inflation for the housing/utilities line-item; and taxi fare hikes in April (to adhere to social distancing rules) appear to have contributed to a large (12%) month-on-month increase in transport prices. However, as the latter three items have small weights in the overall inflation index, such administrative-related factors cannot be taken as the dominant source of inflation. Instead, the underlying sources of inflation (which we’ve previously viewed as largely emanating from supply-side shocks) now appear to reflect a broader combination of factors, including: (1) continued supply side shocks for foodstuffs such as cereals and vegetables (i.e. reduced output in some cases as well as insufficient transport to urban areas in other cases); (2) possibly entrenched public expectations (if farmers/traders have come to expect ever-rising prices and thus hold back on available supplies), and (3) a macro policy stance that apparently was not sufficiently tight (as seems to be suggested by the spread of inflation to services and non-food items and reflecting perhaps lagged effects of the stance of policies in mid- to late-2019).



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Monetary policy: Growth in broad money supply has fallen to 19 percent (year-on-year), which is one of the slowest increases seen in many quarters. The growth rate was well below nominal GDP growth and inflation, pointing to a decline of money supply in real terms. Looking only at trends in the most recent quarters, one sees an even sharper decline in the growth of money supply measures—with broad money, reserve money, and net credit to government all up only 11 to 13 percent in the first nine months of the fiscal year. While data for upcoming months will no doubt show a substantial loosening, the pre-corona monetary policy trajectory was clearly moving towards significant restraint, reflecting more determined policy efforts to control inflation since the beginning of 2020.

Banking developments: In line with slowing monetary growth, banks showed somewhat slower (though still-strong) rates of deposit and lending growth this past quarter. At Birr 990 billion as of March 2020, total deposits were 18 percent higher than a year earlier and just on the verge of crossing Birr 1 trillion. Lending levels (excluding bonds) reached Birr 567 bn as of March 2020, an increase of 32 percent from year-ago levels (and an even higher increase of 38 percent if looking just at private banks). Total financing provided by the banking system (loans plus banks’ holdings of corporate bonds and NBE Bills) reached an estimated Birr 980bn at end March 2020, equivalent to 99 percent of total banking system deposits and indicative of the tight liquidity position at many private banks at the beginning of the year. As has been the case for several quarters now, the private sector continued to be the main beneficiary of recent lending growth, with Birr 212bn of the Birr 262bn credit increase over the past year (roughly 80 percent) going to private borrowers as opposed to Government or SOEs. Indeed, new SOE borrowing via bonds has essentially come to a stop, with their outstanding bond issues essentially flat at Birr 341bn as of December 2019 vs Birr 339bn at June 2019. In terms of other banking indicators, the sector registered 23 percent growth in assets, 12 percent growth in capital (to Birr 80bn), and 18 percent growth in branches (to 5,875 nation-wide branches as of March 2020 or an increase of around 900 branches in just the past year). For the large state bank, CBE, activity indicators were showing a moderation in growth trends, with deposits only up 15 percent and lending up 25 percent from year-ago levels. By contrast, private banks have collectively been expanding their lending at a rapid rate, or by 37 percent from year-ago levels. Boosted by these trends, first nine-month profits at the 16 private banks were up around 43 percent from year-ago levels, though all of this reflects pre-corona developments.

Fiscal policy: Revenue performance continues to be positive and indeed showed record-breaking collections in the first nine months of the fiscal year: tax receipts reached Birr 183bn as of March 2020, or a 29 percent jump from year-ago levels. Taxes on domestic activity showed more modest growth of just 13 percent, but this was offset by large increases in trade taxes (up 45



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percent), boosted in part by the depreciated exchange rate which increases the Birr value of customs collections even in the midst of slightly negative growth in USD imports. Comprehensive budget data including expenditure and deficit outturns is only available to December 2019, and this showed a six-month deficit of Birr 28bn (0.8 percent of GDP), or well within the budgeted figure of Birr 97bn (near 3 percent of GDP).

Debt: For the second quarter in a row, total public debt showed declines in level terms and not just as a share of GDP. Public debt reached $53.4bn at end-December 2019, down from its peak of $53.7bn as of June 2019. Relative to this year’s anticipated GDP (Birr 3,418bn or USD 108.3bn), public debt now stands at 49.2 percent, a near 10 percentage points drop from June 2018 when the ratio peaked at 58.7 percent of GDP. Looking only at external debt, this now stands at 25.5 percent of GDP, also a major drop from its peak of 31 percent seen in June 2018. The latest MOFEC debt data (per the Public Sector Debt Portfolio Report) showed external debt as of end-2019 continuing to have broadly favourable terms, i.e., low average interest rates of below 3 percent and long average maturities of around 11 years.

Trade: Export growth slowed to 10 percent as of March 2020 versus the 15 percent year-on-year growth rates seen at the start the fiscal year. The five top performers—by dollar receipts—continued to be coffee ($563mn in nine months and up 13 percent), flowers ($339mn, up 100 percent), chat ($256mn, up 10 percent), textiles ($142mn, up 30 percent) and fruits and vegetables ($69mn, up 56 percent). Two traditionally large export items, oilseeds ($236mn) and pulses ($164mn), are still showing declines from year-ago levels and thus holding back Ethiopia’s export growth. With respect to import trends, the headline figures for the first nine months show a 4 percent decline, from $11.7bn to $11.2bn. However, excluding fuel imports (down 10 percent due to global oil prices) and one-off aircraft purchases (which inflated last year’s figures), imports were up 6 percent as of March 2020, suggesting relatively moderate levels of economic activity. Areas with strong import trends included fertilizers (up 32 percent), agricultural capital equipment (up 50 percent) and raw materials, while measures of discretionary consumer goods (non-durables excluding cereals) shrank by 20 percent as would be expected with the faster rate of exchange rate depreciation put in place since end 2019.

Balance of payments (BOP): Data for the first six months of the fiscal year (latest available figures) showed a trade deficit of around $6bn, which was offset by $3.5bn in private and official transfers, resulting in a current account deficit of around $2.6 billion. In the capital account, total fx inflows were near $2.2bn reflecting around $1bn in net government borrowing and just $1.3bn in FDI inflows. Reflecting the net impacts of the above as well as other smaller items, and despite the first disbursement of the IMF loan taking place in December 2019, foreign exchange reserves fell by around $450mn over the



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first half of the fiscal year, with fx reserves reaching $2,965mn at end-2019 versus $3,415mn at end-June 2019. Though full BOP data are not available to end-March 2020, the fx reserves figure seen in monetary data reveal a level of $2.5bn as of end-March 2020, equivalent to around 2 months imports.

Exchange rate: The exchange rate reached 32.81 Birr/USD at end-March 2020, and fell further to 33.53 at end-April 2020, equivalent to a depreciation of 15 to 17 percent from year-ago levels. The pace of depreciation has been stepped up from a monthly rate of 21 to 26 cents seen in January and February to monthly rates of 54 cents and 72 cents in March and April respectively. The accelerated rate of annual depreciation observed in recent months is now almost sufficient to cover domestic inflation, which should thus—going forward—help prevent an increase in the real effective exchange rate and what would be a consequent loss of external competitiveness.

Sovereign bond and Market Ratings: Ethiopia’s sole international sovereign bond showed the largest change in prices and yields since its issuance back in 2014. Between mid-January and mid-March, as the global consequences of the corona pandemic became apparent (and largely before the first reported case in Ethiopia on March 13, 2020), the bond’s price had already fallen from 109.7 to 89.7 (an 18 percent drop), while its yield—indicative of the interest rate needed to attract lenders—jumped by 500 basis points from a record low of just 4.4 percent in mid-January to 9.4 percent by end-March. The yield has moved to an even higher 10.1 percent as of early May, which broadly parallels the rising yields seen for many frontier and emerging markets over the past few months.2 With respect to the rating agencies (which have downgraded over 18 emerging markets in recent months per data from The Economist), Moody’s recently indicated that it will initiate a review of Ethiopia’s B1 rating following a downgrading to a ‘negative’ outlook late last year, while Standard and Poor’s and Fitch Ratings have maintained their ‘B’ credit ratings.

2 Per Tellimer research data (Macro Analysis Note April 28, 2020), following expectations of debt relief for many low-income African countries, yields on their USD sovereign bonds are now close to or above 10 percent in many cases, including for Ghana (12.1%), Nigeria (11.9%), Mozambique (11.6%), Rwanda (9.9%), Kenya (9.1%), Egypt (8.3%) and Cote d’Ivoire (8.0%).



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Macroeconomic Outlook:

Main Points

Baseline Assumptions: Our underlying expectation for the year ahead remains that a ‘limited virus spread scenario’ can be maintained due to the substantial scale and scope of public health measures implemented in recent months. Accordingly, we expect the most severe economic impacts of the Corona virus will largely be confined to four sub-sectors whose combined weight in the overall economy is below 20 percent of GDP.

Policy support: Policy interventions are beginning to provide assistance to affected sectors and the broader economy through direct funding, debt rescheduling, tax relief, and liquidity support. The size of stimulus measures on the fiscal side is close to 3 percent of GDP (including foregone/lower taxes and extra expenditure) and also substantial on the monetary side (with a planned doubling of growth rates in money supply, 1.2 percent of GDP in liquidity support, and a generous relaxation of bank rescheduling rules). In addition, a combination of reduced imports, increased foreign assistance ($500mn already received, a similar amount likely forthcoming), and anticipated debt relief (possibly up to $1bn) is mitigating impacts from a balance of payments perspective.

Outlook: As the policy response to the economic shocks brought about by the Corona virus has been substantive, well-managed, and supported by foreign assistance, we think growth next year can reach 5 percent, though this will partly come at the expense of a much larger budget deficit, possibly higher inflation, lower private credit growth, and somewhat higher debt.

Overview

GDP growth: The severity of the corona pandemic on Ethiopia’s growth prospects will depend mainly on developments in three large sub-sectors that collectively account for 70 percent of GDP—namely agriculture, construction, and wholesale/retail trade. In our view, all three of these sectors are likely to face only modest or moderate impacts:

o For agriculture (36% of GDP), prospects in this sector are primarily influenced by rainfall conditions plus the availability of key inputs for farmers. In this respect, the outlook for the 2020 crop season shows favourable trends judging from the recent belg rains, the substantial growth in fertilizer imports (up 32 percent from year-ago and with a record 1.7mn tons to be distributed to farmers, per Ministry of Agriculture data) as well as the extensive government preparations taking place in the pre-harvest months (including recent campaigns in many regions to prepare as much lands as possible for the coming



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planting season). Regarding concerns over recent locust infestations, this appears substantial at first glance (with around 200,000 hectares affected and 3.6 mn quintals lost according to government and donor assessments),3 but is actually comparatively modest when seen relative to Ethiopia’s total farmland (12.8mn hectares), total crop output (323mn quintals) or overall GDP (the net impact is on the order of 0.36 percent of total economic activity). Accordingly, with a (presumed) favourable rainy season, good supplies of fertilizer in place, and extensive regional plans to boost acreage under cultivation, growth of 3 to 4 percent is plausible—in our view—for the upcoming 2020-21 crop season.4

o With respect to construction activity (20% GDP), as this sector has not been interrupted by lockdowns and appears to be continuing its activities in most urban areas, growth declines should be modest and temporary, especially when also considering that public sector projects—which are to be maintained—continue to drive a large part of the activity in this area.

o For wholesale and retail trade (14% of GDP) this sector might suffer a modest drop in activity, but again most of the activity in this area should not be interrupted for too long as it reflects trading in many non-discretionary items such as basic food crops and consumer goods, exports and imports, and routine retail activities.

o In contrast to the dominant parts of the economy noted above, the sectors most heavily affected by the corona virus are generally smaller segments of the wider economy, whether for hotels and restaurants (2.6% of GDP), exports (2.8% of GDP), manufacturing (4.1% of GDP), or banking (3.3% of GDP). Moreover, developments in April and early May 2020 suggest that anticipated economic damages may turn out less than initially feared thanks in large part to series of measured but still significant policy and regulatory interventions: (1) the hospitality sector is now being compensated by a combination of debt rescheduling, tax relief, employee tax support, and a Birr 3.3bn lending program through commercial banks; (2) exporters are being provided generous debt service relief by banks, flower exports are down sharply but have not totally collapsed either (industry growers suggest 30-40 percent of prior export levels are taking place), and coffee exports are continuing to do well even in the most recent months (reaching $104mn in April 2020 alone, or the highest monthly level in over a year); (3) manufacturers are receiving bank support and seeing a quicker-than-expected resumption of supply chains in China; and (4) banks are benefitting from a combination of liquidity relief and (thanks to recent NBE Circulars)

3 “Impact of Desert Locust Infestation” report by Govt and Joint Donor Group, April 2020.4 National Meteorological Agency data point to an ‘average’ rainfall outlook for the belg period, and they also report a rise in the level and distribution of rains in April/May vs Feb/March 2020.



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generous regulatory forbearance enabling them to much more flexibly reschedule loans and modify the short-term/long-term maturity mix of their loans without regulatory constraints or penalties.

o Overall GDP growth: Considering all of the above, and recalling the late

onset of the Corona virus within Ethiopia’s current fiscal year (the four most affected sub-sectors were impacted for only the last four months of the year), we expect GDP growth will be around 6 percent for FY 2019/20 versus our pre-corona projections of 8 percent.5 For the coming fiscal year, we maintain our previous growth projection of 5 percent (a 2.5 percentage points decline from pre-corona projections), on the expectations that the full-year effects of the corona virus will result in notably slower growth for industry (9% vs 11%) and particularly services (3.5% vs 6.5%).6 In general, given the timing of Ethiopia’s July-to-June fiscal year, we are more optimistic about growth outturns for this fiscal year (being closer to the Government’s 6.2 projection for FY 2019-20 rather than the World Bank’s 4.0 percent or the IMF’s 3.2 percent), while we expect slightly lower growth outturns for next fiscal year (closer to the IMF’s 4.3 percent projection for FY 2020-21 rather than the World Bank’s 6.0 percent or the Government’s 8.5 percent).

Inflation: With respect to the inflation outlook, there is—as always—considerable uncertainty over its upcoming movements and even direction. Several recent developments should certainly help reduce price pressures, including lower global oil prices and the deflationary impact of slowing activity in several service sectors. At the same time, inflation could remain elevated or rise even further if the upcoming crop season produces weak results, if transport interruptions hinder movements in foodstuffs, and if the large size of fiscal and monetary stimulus measures (see below) aggravate excess demand pressures. On balance, we think a range of pre-emptive measures being taken by government can help minimize such risks: large government procurements of staple foods have recently been initiated to boost stocks of key items (1.8 mn tons of wheat, 320,000 tons of rice, 170,000 tons of sugar, and 104mn litres of cooking oil); current transport restrictions across regions are clearly exempting cargo and foodstuff movements; and fiscal/monetary stimulus measures are being put in place only temporarily and expected to be unwound in 2021 (see below). Accordingly, we think it is more likely than not that inflation can trend gradually lower to 18 percent by

5 Relative to our Corona Impacts research note of March 31, 2020, we reduce somewhat our services sector projection for the last quarter of this year and thus expect sector growth rates of 4.3/11.0/4.0 for agriculture/industry/services, which gives overall growth of 6.0 percent given their respective weights of 33.3/27.1/39.6 percent in real GDP. 6 More precisely, our projections reflect an assumption that sectors accounting for about 20 percent of GDP experience a 5 percent drop in real activity over the course of the fiscal year, while the remaining non-affected parts of the economy collectively growth at close to 7 percent.



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the end of this fiscal year (June 2020), and then fall further to the low teens by end 2020.

Fiscal policy and debt: Fiscal policy is set to be the most expansionary seen in many years, per the Government-IMF macro program, with the deficit deteriorating by a combined Birr 104bn (2.6 percent of GDP) this year and next (we had estimated a fiscal deterioration of near Birr 90bn or 2.3 percent of GDP). Considering pre-existing deficit levels (pre-corona), the overall deficit this year will be a record high of Birr 134bn (near 4 percent of GDP) while another Birr 145bn (3.5 percent of GDP) deficit is planned next fiscal year—for a cumulative deficit of 7.5 percent of GDP over the two years.7 This exceptionally high budget deficit reflects large increases in COVID-related expenditure (Birr 69bn net) as well as a big drop in government revenue (Birr 35bn net of extra grants). The financing needed to cover the Birr 134bn deficit is, per the IMF Staff Report, to be secured by a combination of foreign loans (Birr 62bn or nearly $2bn) as well as domestic borrowing (Birr 71bn from NBE, banks, and non-banks). As of May 2020, Birr 32bn ($1bn) out of the Birr 134bn needed financing was still to be identified/secured, though a sizeable portion of this unidentified financing could potentially be covered by debt service relief from multilateral and bilateral creditors, to whom the Government owes around Birr 15bn (~$400mn) in annual debt service dues.8 As should be expected, debt ratios will deteriorate in the coming year, reaching 55 percent of GDP vs the 52 percent anticipated pre-corona.

Monetary developments and banking: Alongside the large fiscal stimulus, a highly expansionary monetary policy is also being put in place to provide the needed support to the economy. While reserve money was (pre-corona) set to increase by only 12.5 percent this year, it is now expected to grow by double that amount, or 25 percent, per data in the latest IMF Staff Report. Similarly, though broad money growth was held to just 18 percent in the original Government-IMF macro program, a much higher broad money growth of 27 percent is now planned for the year, which will take overall money supply from Birr 886 billion as of last June to 1.12 trillion by June 2020 (30 percent of GDP). The expanded broad money growth is intended to enable increased monetary financing of the deficit: government borrowing from the domestic financial system is going to be on the order of Birr 42bn this year, reflecting Birr 30bn in net borrowing from the central bank and another Birr 12bn in borrowing from banks and non-banks. One consequence of such expanded government borrowing will be less growth in credit to the private sector, which is likely to moderate next year given policy priorities

7 The fiscal and monetary framework referred to here and expected to guide policy-making for the period ahead is based on the Government-IMF macro program as laid out in the May 2020 IMF Staff Report; see Tables 2a/3 on the fiscal/monetary accounts respectively. 8 Government debt service was $385mn in FY 2018-19 per MOFED Public Debt data. Most of Ethiopia’s nearly $2bn in annual external debt service is owed by state-owned enterprises not Government (see Footnote 9 for details on external debt service figures).



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(only 6 percent growth is anticipated in the Government-IMF macro program for FY 2020-21, though this seems unrealistically low in our view). The high level of monetary growth and government financing for this year should be short-lived, however, as the macro program shows broad/base money growth reverting to more normal growth rates of just 12/10 percent for FY 2020-21, with net government borrowing from the banking system also falling (towards Birr 30bn) by next year. On the regulatory front, besides providing flexibility to banks to reschedule loans without penalties, the central bank has provided a combined Birr 48bn in liquidity and related support to private and public banks as of mid-May (equivalent to 5 percent of deposits, or 1.2 percent of GDP, and close to our expectations at end-March that as much as Birr 46bn in liquidity support may be required).

Balance of payments: With respect to the balance of payments, we broadly retain the outlook presented in our Corona impacts note of end-March 2020. In particular, we expect the balance of payments to show a near $1.5bn deterioration this fiscal year (vs pre-corona expectations), reflecting mainly lower service exports, reduced remittances, and delays in privatization-related FDI inflows that were expected by June 2020. More specifically, for the soon-to-be-ending fiscal year, we see goods exports at $2.6bn (3 percent decline from last year), services exports at 4.6bn (a 5 percent drop), and remittances at $5.1bn (a 10 percent drop). On the capital account, we expect FDI will only reach $2.4bn for the year given delayed privatization. Reflecting these developments, we expect the fx reserves stock at the end of the fiscal year will only be around $2.6bn, rather than the $4bn expected pre-corona (which had assumed privatization inflows by June 2020). For next fiscal year, while a deterioration in some of the main current account items is likely (as service exports and remittances take time to recover) this should be more than offset by increased external grants and by a large capital account surplus linked to (presumed) privatization-related FDI inflows and significant foreign borrowing. Accordingly, we project a small balance of payments surplus and a rise in the reserves stock—boosted in part by IMF financing—to $3.7bn by June 2021. These projections do not incorporate potential debt relief from foreign creditors which, if it fully materializes from multilateral/bilateral creditors, would imply close to $1bn of reduced fx outflows and thus—all else equal—a correspondingly higher foreign reserves figure at year-end ($4.7bn rather than $3.7bn by June 2021).9

9 Of the near $2bn in annual external debt service dues, and using FY 2018-19 data in MOFEC’s Public Debt Bulletin, $385m is owed by Government and $1,615mn is owed by SOEs. Roughly $620mn reflects interest repayments and $1,375mn are principal payments. By creditor, $207mn of the debt repayments were to multilaterals, $733mn to bilaterals, and $1,054mn to private creditors. Considering debt service relief only from multilateral and bilateral creditors, roughly $940mn (207+733) is very likely to be rescheduled under recent IMF/WB and G-20 initiatives. Some portion of the $1,054mn remaining dues owed to private creditors may be rescheduled, but this is unlikely for interest due on the sovereign bond ($66mn given the 6.65% coupon on the bond) as well as Ethiopian Airlines repayments due to private commercial bank lenders. Figures for this year and FY 2020-21 would be somewhat (but not much) higher than these numbers.



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Exchange rate: As noted earlier, the pace of exchange rate depreciation has been stepped up since November 2019, and has recently been moving at a rate of 15 to 17 percent from year-ago levels. The trends observed in the first half of May suggest that the depreciation will continue at a pace that stays within the 15-17 percent annualized rate. We assume this accelerated rate of annual depreciation is being pursued by the central bank to prevent a rise in the real effective exchange rate and so expect this to continue in the current environment of elevated inflation. Accordingly, we anticipate gradual depreciations of 50 to 60 cents per month continuing for the remainder of the calendar year, and thus see the rate at just under 35 Birr/USD by end-June 2020 and just under 38 Birr/USD by end-2020.

A summary of our full set of macroeconomic projections—covering the real, banking, fiscal, and external sectors—is provided in the attached Annex.



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COVID-19: Trends in Ethiopia to May 15, 2020:

Table A: Ethiopia COVID-19 Cases and Recoveries to May 15, 2020

Source: Ethiopian Public Health Institute Press Releases

0

50

100

150

200

250

300

13-Mar-2

0

15-Mar-2

0

17-Mar-2

0

19-Mar-2

0

21-Mar-2

0

23-Mar-2

0

25-Mar-2

0

27-Mar-2

0

29-Mar-2

0

31-Mar-2

0

2-Apr-20

4-Apr-20

6-Apr-20

8-Apr-20

10-Apr-20

12-Apr-20

14-Apr-20

16-Apr-20

18-Apr-20

20-Apr-20

22-Apr-20

24-Apr-20

26-Apr-20

28-Apr-20

30-Apr-20

2-May-20

4-May-20

6-May-20

8-May-20

10-May-20

12-May-20

14-May-20

COVID-19 Cases in Ethiopia and Recoveries

Total Cases Total Recovered

COVID case counts have reached close to 300 as of mid-May 2020. With recoveries exceeding 100 persons, the net number of affected persons is now closer to 200.

Table B: Ethiopia COVID-19 New Cases and Cumulative Total Deaths

Source: Ethiopian Public Health Institute Press Releases

0

5

10

15

20

25

30

13-Mar-2

0

15-Mar-2

0

17-Mar-2

0

19-Mar-2

0

21-Mar-2

0

23-Mar-2

0

25-Mar-2

0

27-Mar-2

0

29-Mar-2

0

31-Mar-2

0

2-Apr-20

4-Apr-20

6-Apr-20

8-Apr-20

10-Apr-20

12-Apr-20

14-Apr-20

16-Apr-20

18-Apr-20

20-Apr-20

22-Apr-20

24-Apr-20

26-Apr-20

28-Apr-20

30-Apr-20

2-May-20

4-May-20

6-May-20

8-May-20

10-May-20

12-May-20

14-May-20

COVID-19 New Cases and Deaths

New Cases Total Deaths

Daily new cases have risen notably since the start of May, averaging 10 per day in the past two weeks vs just 3 per day in the prior two-week period.

The number of deaths remains very low, however, at a total of just 5 cases over the past two months, or an average rate of one death every 12 days.



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Table C: Top 20 Most Populous Countries and COVID-19 Cases as of May 15, 2020

World's Most Populous Countries: Above 100mn population

Population,In millions

Cases as ofMay 15

Deaths as ofMay 15

Cases permillion

Deaths permillion

Countries with population above 100 million1 China 1,438.63 84,029 4637 58.4 3.22 India 1,378.29 82,103 2649 59.6 1.93 United States 330.76 1,417,889 85906 4,286.8 259.74 Indonesia 273.16 16,006 1043 58.6 3.85 Pakistan 220.35 37,218 803 168.9 3.66 Brazil 212.37 203,165 13999 956.7 65.97 Nigeria 205.48 5,162 167 25.1 0.88 Bangladesh 164.48 18,863 283 114.7 1.79 Russia 145.93 252,245 2305 1,728.6 15.8

10 Mexico 128.76 42,595 4477 330.8 34.811 Japan 126.52 16,120 697 127.4 5.512 Philippines 109.40 11,876 790 108.6 7.213 Egypt 102.09 10,829 571 106.1 5.614 Ethiopia 100.8 287 5 2.8 0.0

Other Top 20 countries15 Vietnam 97.23 312 0 3.2 -16 DR Congo 89.21 1,242 50 13.9 0.617 Turkey 84.22 144,749 4007 1,718.6 47.618 Iran 83.86 114,533 6854 1,365.8 81.719 Germany 83.75 174,478 7884 2,083.3 94.120 Thailand 69.78 3,025 56 43.4 0.8

37,218 1,043 114.68 5.51

11,560 555 114.68 5.51

Source: Johns Hopkins University data for COVID-19 cases as of May 15, 2020 and as compiled by worldometers.infoPopulation data from worldometers.info, except for Ethiopia which is based on CSA data

Median, excluding Ethiopia:

Ethiopia if case/death rates per millionwere at Top 20 median:

Ethiopia still has the lowest reported case among the world’s 20 most populous countries Reported deaths are also among the lowest, second only to Vietnam which reports zero deaths. Ethiopia’s low case numbers may reflect limited testing (around 50,000 so far), but the low death

count still suggests a relatively contained and/or non-fatal virus spread.

Table D: Top 20 Most Populous Countries--Trends in COVID-19 Cases and Deaths Since March 2020

Cases as ofMarch 31

Cases as ofMay 15

Change in cases,Past 45 days

[As multiple]Deaths as

of March 31Deaths asof May 15

Change in deaths,Past 45 days

[As multiple]Countries with population above 100 million

1 China 81,470 84,029 1.0x 3304 4637 1.4x2 India 1,071 82,103 76.7x 29 2649 91.3x3 United States 151,944 1,417,889 9.3x 2805 85906 30.6x4 Indonesia 1,414 16,006 11.3x 122 1043 8.5x5 Pakistan 1,690 37,218 22.0x 21 803 38.2x6 Brazil 4,371 203,165 46.5x 141 13999 99.3x7 Nigeria 111 5,162 46.5x 2 167 83.5x8 Bangladesh 49 18,863 385.0x 1 283 283.0x9 Russia 1,836 252,245 137.4x 9 2305 256.1x

10 Mexico 993 42,595 42.9x 20 4477 223.9x11 Japan 1,866 16,120 8.6x 54 697 12.9x12 Philippines 1,546 11,876 7.7x 78 790 10.1x13 Egypt 609 10,829 17.8x 40 571 14.3x14 Ethiopia 26 287 11.0x 0 5 …

Other Top 20 countries15 Vietnam 203 312 1.5x 0 0 …16 DR Congo 81 1,242 15.3x 8 50 6.3x17 Turkey 10,827 144,749 13.4x 168 4007 23.9x18 Iran 41,495 114,533 2.8x 2757 6854 2.5x19 Germany 63,929 174,478 2.7x 560 7884 14.1x20 Thailand 1,524 3,025 2.0x 9 56 6.2x

Median change, Top 20 countries excl ET: 13.4x … … 19.1xMedian change, Low- and Middle-Income Countries: 16.6x … … 23.9x

Median change, Countries with Pop above 100mn: 22.0x … … 38.2x

Source: Johns Hopkins University data for COVID-19 cases as of May 15, 2020 and as compiled by worldometers.infoPopulation data from worldometers.info, except for Ethiopia which is based on CSA data

Trends in cases/deaths since end-March show Ethiopia as having a better-than-average record (an 11x jump over the past month-and-a-half) vs 16.6x in low/mid-income countries.

The limited change in deaths (5 cases) compares to a 19x jump on average in other large countries.



14

Table E: Economic Policy Measures Taken to Combat the Economic Impacts of COVID-19

Fiscal Measures1 Emergency health-sector spending outlays of Birr 5bn2 Removal of import taxes on COVID-19 items3 Faster VAT refunds to businesses4 Tax arrears forgiveness for all dues up to FY 2014-15; this covers 3,099 taxpayers and principal/interest/penalties due5 Tax interest and penalty forgiveness for all dues between FY 2015-16 and FY 2018-19. Principal still due with 25% payable

within 30 days and remainder within a year.6 Waiver of rental tax for education institutions and MSMEs by regional/city governments7 Waiver of rental tax for private landlords who waive rents for their tenants (for rents not exceeding Birr 10,000 per month)8 Waiver of employmet tax of workers for a period of four months9 Extension on VAT and Turnover Tax payments of March/April/May up to June 2020

10 COVID-related charitable donations to be eligible for tax deduction of up to 20 percent11 Loss incurred in FY 2019-20 to be carried forward even if already carried forward two FY losses12 Pension contributions of private organizations for April/May/June deferred up to July 2020

Monetary Policy1 Liquidity support to private banks [Birr 15bn]2 Liquidity support to public banks [Birr 16bn and related other support of Birr 17bn]3 Higher limits on mobile money transfers4 Relaxation of central bank directives to allow banks flexibility in rescheduling loans for affected sectors5 DBE to provide credit to Micro and SMEs via a quick-disbursing special window6 DBE to provide credit to Micro-Finance Institutions and Cooperatives to support their respective clients7 Tourism sector allocated Birr 3.3bn for working capital to be channeled via commercial banks8 Most commercial banks--through own initiative and moral suasion--have reduced lending rates to affected sectors, cut

fees, and offered postponements on debt service dues Among banks offering such relief, per press reports, are Awash,Dashen, Abyssinia, Zemen, CBO, Berhan, DGB and others.

Other Administrative and/or Regulatory Measures1 Priority fx allocations for corona-related imports2 Removal of minimum price for flower exports3 Enhanced enforcement on 'price-gouging' retailers4 Manufacturers previously restricted from selling domestically to be allowed such sales if unable to export

Source: PM Office Website "Summary of COVID 19 Economic Response Measures", MOFEC/NBE announcements, and press reports.

Table F: Public Health Measures Taken to Combat COVID-19

Preventive public health measures1 Mandatory 14-day quarantine for entrants to Ethiopia2 Closure of all land borders3 Closures of schools, universities, and federal government offices in March-April 20204 State of Emergency issued5 Mandatory wearing of masks in public places/markets6 Social distancing rules in public transport7 Close to 10 dedicated hospitals, plus Millenium Hall, prepared for Corona-specific treatments8 Extensive public education campaigns via TV, radio, and other media9 COVID-19 online training packages offered

10 Over 220 health centers nationally dedicated for COVID-1911 Closure of religious institutions and entertainment centers12 Extensive Health Extension Worker corps deployed in rural areas to inform, test, and monitor

Tesing and Tracing1 Around 50,000 tests undertaken as of Mid-May 20202 27 testing centers established3 Random temperature checks across the regions4 House-to-house population screening taking place in AA and Regions5 Tracing activity undertaken for positive cases identified and quarantine imposed

Other Measures1 Production of masks, sanitizers, soaps, etc started/increased at dozens of manufacturing firms2 Extensive fund-raising initiatives by public and private companies/institutions/individuals, which

may raise above Birr 5bn or more over the coming months based on current trends.3 1,200 food banks with supplies of basic foodstuffs operating in all of Addis Ababa's 100 woredas

Source: Ministry of Health, Ethiopian Public Health Institute, PM Office website, and press reports.



15

ECONOMIC ACTIVITY: Recent Developments and Outlook

Growth outlook:

We expect only a 2 percentage points drop in growth this year, largely since two-thirds of the fiscal year was unaffected by corona impacts and the most heavily affected sub-sectors make up a comparatively limited segment of the economy.

For next fiscal year, we see a somewhat larger drop and forecast 5 percent growth, reflecting mainly service sector impacts. This would mark Ethiopia’s slowest growth in 18 years.

The Government, IMF, and World Bank all expect positive—but reduced—growth both this year and next.

We are closer to the Government’s growth projection for this year, but less optimistic than others for next fiscal year.

Activity indicators as of March 2020 (thus pre-corona) showed positive trends in many areas—such as in fuel consumption, tax collections, bank lending, industrial park exports as well as employment, and ECX commodity trades of major agricultural products.

The weak areas observed were in FDI inflows, electricity power generation, and tourist arrivals.

Table 1A: Revised Growth Rates for FY 2019-20 and FY 2020-21

Prev Proj Revised Proj Prev Proj Revised ProjGDP growth 8.0% 6.0% 7.5% 5.0%

Agriculture 4.5% 4.3% 4.0% 3.7%Industry 12.0% 11.0% 12.0% 9.0%Services 8.3% 4.0% 7.5% 3.5%

Source: Cepheus Research projections

Current Fiscal Year: 2019-20 Next Fiscal Year: 2020-21

Table 1B: Growth Projections by Different Institutions

Current Fiscal Yr2019-20

Next. Fiscal Yr2020-21

Government 6.2% 8.5%World Bank 4.0% 6.0%IMF 3.2% 3.7%

Cepheus Capital 6.0% 5.0%

Average 4.9% 5.8%

Source: Publications of the respective institutions and Cepheus Research

Figure 1C: Activity Indicators for First Quarter and First Half of Fiscal Year

Data available to end-Dec 2019 FY 2018-19H1

FY 2019-20H1

Nominalgrowth

Realgrowth

Fuel consumption (Tons) 964,153 1,013,691 … 5.1%Electricity power generation (Kwh mns) 4,171.8 3,843 … -7.9%FDI ($mns) 1,828.0 1,362.0 … -25.5%Employment created (JCC) 821,000 1,184,868 … 44.3%

Data available to end-March 2020 FY 2018-19Nine Months

FY 2019-20Nine Months

Nominalgrowth

Realgrowth

Tax collections 145.7 183.2 25.7% 7.4%o/w Direct tax collections 88.9 100.7 13.2% -5.1%o/w Trade tax collections 56.7 82.4 45.5% 27.2%

Deposit levels 837 990 18.2% 0.0%Loan levels 428.9 567 32.3% 14.0%Industrial parks exports ($mns) 102.7 137.1 … 33.6%Industrial parks employment 69,866 87,927 … 25.9%Tourist arrivals 564,808 541,145 … -4.2%ECX Traded Commodities (Bn Birr) 25.1 30.4 … 21%ECX Traded Commodities (Tons) 502,353 602,823 … 20%

Major Traded Commodities (Tons)Coffee 227,338 231,885 2%Sesame 203,632 211,777 4%

Source: NBE, Ministry of Transport, Ministry of Revenue, Banks survey data, ECX, JCC.



16

Recent Developments… continued:

Locust infestations in Ethiopia and the region have continued to be of concern for their potential impact on food crops.

However, most food-growing areas within Ethiopia are still not substantially affected.

Estimates of affected farmland and crop losses have increased since February, with the size of locust-infested areas now estimated at nearly 200,000 hectares versus just 70,000 before.

However, even with this increase, the overall impact remains limited to date: 1.5 percent of hectares farmed and 1.1 percent of annual crop output.

Recent rainfall data suggest most areas of the country are having average to above-average rains.

The Meteorological Agency’s forecast for the kiremt months is not yet available and is expected to be released in June 2020. But if the pattern of recent belg rains continues into the kiremt months, this should bode well for the upcoming crop season.

Table 2B: Estimated Impact of Locust Infestation

Initial Estimate Latest EstimateLocust-related impacts

Locust-affected land, in hectares 70,000 197,163Total land under cultivation, 2019-20 12,773,912 12,773,912Locust-affected land, percent of all crop land 0.55% 1.54%

Locust-affected crop output, in mns of quintals 1.8 3.6Total crop output, 2019-20 329.3 329.3Locust-affected crops, percent of total crop output 0.55% 1.09%

Potential Agricultural GDP impact: -0.55% -1.09%

Share of Agriculture in total GDP: 33.30% 33.30%

Potential Total GDP impact: -0.18% -0.36%

Source: Per Ministry of Agriculture February 2020 estimate and April 2020 "Joint Assessment Findings" of Govt-Donor group

Table 2C: Rainfall Chart as of Early 2020

Source: National Metereological Agency, "FY2019-20 Bega Weather Review and 2020 Belg Rainfall Outlook" Report (Amharic)

Below Average Average Above average

Figure 2A: Locust infestation--Affected areas as of April 2020

Source: "Impact of Desert Locust Infestation on Household Livelihoods and Food Security in Ethiopia", Joint Assessment Findings, April 2020



17


Most investment indicators point to positive nominal growth as of March 2020.

The decline in FDI need not bring down overall investment given its low share (~10 percent) in total investment.

PRICES AND INFLATION: Recent Developments and Outlook

Inflation outturns:

Inflation has been above 20 percent for six months now and stood at 22.9 percent as of April 2020.

Inflation has increasingly spread to non-food items as well as to services (though it was previously very high mainly for food items)

Items whose inflation rate has risen markedly in recent months are alcoholic beverages, housing/utilities, and transport.

Figure 3: Recent Investment Indicators

FY 2018-19H1

FY 2019-20H1

Percentchange

First Half Performance*SOE bond borrowing (Birr bns) 304 341 12.0%Govt Capital Expenditure (Birr bns) 43 52 21.9%Foreign Direct Investment (USD bns) 2.4 1.80 -25.0%

Nine-Months Performance*FY 2018-19

Nine MonthsFY 2019-20

Nine MonthsPercentchange

Capital Goods Imports (USD bns) 4.1 3.4 -18.7%Excluding Aircraft 3.3 3.3 0.8%Excluding Aircraft & Transport 2.0 3.0 46.3%

* Depending on lags in data availability, figures reported are either for Dec 2019 or Mar 2020.Source: NBE quarterly bulletin, MOTI,ERCA. EIC

Figure 4A: Inflation Outturns by key analytical categories -- April 2020

Weight inCPI index

Weightswithin

Category

Inflation(M-o-M)

Inflation(Y-o-Y)

A. Domestically Produced and Domestically Consumed 27.6%1 Bread and Cereals 17.1% 47% 5.5% 31.2%2 Alcoholic beverages and tobacco 4.9% 13% 4.2% 27%3 Other food products 5.6% 15% 0.6% 30%4 Meat 4.2% 12% 3.7% 32%5 Milk, Cheese, Eggs 3.1% 9% 1.8% 13%6 Sugar, jam, honey and others 1.4% 4% 0.7% -4%

Sub-Total 36.5% 100%

B. Domestically produced but also heavily exported 24.2%7 Vegetables 12.3% 70% 3.0% 24%8 Non- alcoholic beverage and coffee 5.1% 29% -0.3% 25%9 Fruits 0.2% 1% 2.5% 25%

Sub-Total 17.6% 100.0%

C. Import-Heavy Commodities 10.3%10 Clothing and footwear 5.7% 33% 0.8% 9%11 Furnishings, Household Equipment, and others 4.7% 27% 0.8% 8%12 Oils and Fats 4.3% 25% -5.9% 12%13 Miscellaneous goods 2.5% 15% 0.6% 16%

Sub-Total 17.2% 100.0%

D. Services 22.3%14 Housing, water, electricity, gas, other fuels 17% 59% -0.5% 26%15 Restaurants and Hotels 5.3% 18% 0.0% 20%16 Transport 2% 9% 11.7% 28%17 Health 1% 5% 2.2% 18%18 Communication 2% 7% 1.4% 0%19 Recreation and culture 0% 1% -0.4% 11%20 Education 0% 1% 2.0% 3.8%

Sub-Total 28.7% 100.0%

Overall inflation 100% 2.1% 22.9%

Source: CSA and Cepheus Research for categorizations; shaded figures are those items with highest weight in CPI index



18


Cereals (grains) remain the largest contributor to inflation, which also reflects their high 17 percent weight in the inflation index

Housing/utilities and vegetable prices were also among the highest sources of inflation.

Within cereals, price increases for teff have been particularly high (up around 50 percent to Birr 3,700 per quintal from Birr 2,400 a year ago)

Prices of other major grains—wheat, maize, and sorghum—remain roughly flat vs year-ago levels

Three line-items with a combined weight of 50 percent are primarily responsible for Ethiopia’s double-digit inflation.

Excluding these three items, inflation would be 9.9 percent.

Figure 4B: Top five contributors to inflation, April 2020

Source: CSA and Cepheus Research

5.35%

4.33%

2.95%

1.35% 1.34%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

Bread and Cereals Housing, water,electricity, gas, other

fuels

Vegetables Meat Alcoholic beveragesand tobacco

Top 5 Contributors

Table 4C : Price of major grains/cereals (Birr per quintal)

Source: Ethiopian Grain Trading Enterprise

857 841973 991

1,095 1,146 1,146944

744905

999 978 990

2,3592,500

2,713 2,6992,868

3,036 3,030 2,990 2,988 2,9083,022

3,466

3,782

1,5251,629 1,615 1,591

1,890 1,916 1,8841,795 1,851

1,726 1,740 1,660 1,6951,555

1,657 1,653 1,6431,780 1,837

1,932 1,9431,803

1,705 1,702 1,698 1,695

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20

Price of major grains/cereals (Birr per quintal)

Maize Teff Wheat Sorghum

Table 4D: Inflation Excluding Certain Large Components

Overall Inflation, End-April 2020 22.9%

Inflation excluding selected itemsInflation without cereals price increases 17.1%Inflation without cereals & vegetable price increases 14.2%Inflation without cereals & vegetable & housing/utilities price increases9.9%

Memo items: Weight InflationCereals (including bread) 17.1% 31.2%Vegetables 12.3% 24.0%Housing and Utilities 16.8% 25.7%

Source: CSA and Cepheus Research



19

Month on month inflation:

Month-on-month inflation remains unusually high, in the range of 2% to 3% recently, and thus over 24% and 36% on an annualized basis.

Month-on-month inflation has exceeded its normal patterns at this time of year (based on the ten-year average) for three consecutive months.

Looking ahead, planned government procurements of staple foods could moderate inflation in the coming months.

The planned procurement volumes are significant; by our calculations, they are roughly 36 percent of last year’s domestic wheat crop, 65 percent of the domestic sugar harvest, and nearly equal to Ethiopia’s (small) annual rice crop.

Supported by moderating food prices, we expect 1 percent month-on-month inflation rates for the coming months, until this switches to negative rates (per seasonal patterns) following crop harvests.

On this basis, we project inflation of 18 percent by June 2020 and 12 percent by December 2020.

Table 5B: Large Recent Govt Procurement Announcements of Staple Foods

Commodity Amount Units Unit price Est cost, USD mns Est cost, BIrr mns

Wheat 1,810,000 Tons 220$ 398,200,000$ 13,538,800,000Cooking oil 104,280,000 Liters 1.43$ 149,120,400$ 5,070,093,600Rice 173,000 Tons 550$ 95,150,000$ 3,235,100,000Sugar 320,000 Tons 230$ 73,600,000$ 2,502,400,000

Total Estimated Cost: 716,070,400$ 24,346,393,600

Source: Public Procurement notice and estimated current prices from online commodity price websites.

Figure 6: Inflation Projections to December 2020

Price index M-o-M inflation Y-o-Y inflation

ActualsMay 2019 142.3 4.3% 16.3%June 2019 144.4 1.5% 15.3%July 2019 146.3 1.3% 15.5%August 2019 149.8 2.4% 17.9%September 2019 152.3 1.7% 18.6%October 2019 152.1 -0.1% 18.7%November 2019 153.1 0.7% 20.8%December 2019 154.0 0.6% 19.8%January 2020 155.1 0.7% 18.7%February 2020 159.5 2.8% 21.7%March 2020 164.2 3.0% 22.6%April 2020 167.6 2.1% 22.9%

ProjectionsMay 2020 169.7 1.3% 19.3%June 2020 171.4 1.0% 18.7%July 2020 173.1 1.0% 18.3%August 2020 174.9 1.0% 16.7%September 2020 176.6 1.0% 16.0%October 2020 174.8 -1.0% 14.9%November 2020 174.0 -0.5% 13.6%December 2020 173.1 -0.5% 12.4%

Source: CSA and Cepheus Research; M-o-M inflation projections guided by recent trends andhistorical medians

Figure 5A: Month on Month Inflation

Source: CSA

4.3%

1.5%1.3%

2.4%

1.7%

-0.1%

0.7% 0.6%0.7%

2.8%3.0%

2.1%

1.4% 1.3%1.2%

1.0%

1.9%

0.1%

-0.2%

0.6%

1.1%0.9%

2.4%

1.5%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

May June July August September October November December January February March April

Month on Month Inflation

M-o-M Ten Year Average M-o-M



20

MONETARY POLICY: Recent developments and outlook

Monetary growth:

Growth in money supply has slowed to 19 percent (year-on-year) as of end-March, and to an even lower rate of 11 percent on a nine-month basis.

A more restrained monetary policy stance (to control inflation) was clearly beginning to be put in place as of March 2020, prior to the onset of the corona pandemic.

Figure 7B: Year-on-Year Growth Rates of Key Monetary Variables

Source: NBE. March 2020 data is the nine-month growth rate annualized to show the more recent growth slowdown

30% 30% 30%29%

25%

22%

20% 20%21% 20%

15.0%

25%

18%16%

19%

15%

13%

10%

15%

7%

16%

14.6%

0%

5%

10%

15%

20%

25%

30%

35%

Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20

Y-o-Y Growth Rates of Monetary Variables for the Past Ten Quarters

Broad Money Reserve Money

Figure 7A: Broad Money and Reserve Money (Birr bns)

Jun-17 Jun-18 Mar-19 Jun-19 Mar-20Y-o-Y

% ChangeNine-month

% ChangeBroad Money 573.4 740.6 832.0 886.8 986.8 18.6% 11.3%

o/w Domestic credit 631.1 784.6 888.6 963.7 1,147.9 29.2% 19.1%o/w Net foreign assets 38.0 39.4 27.4 14.5 (28.9) -205.4% -299.3%

Reserve Money 146.3 174.2 177.8 200.7 222.7 25.3% 10.9%o/w Currency in circulation 94.2 112.9 125.3 121.8 139.1 11.0% 14.2%o/w Bank deposits at NBE 52.0 61.3 52.5 78.9 83.6 59.2% 5.9%

Government Borrowing from NBE (net) 116.6 140.2 145.0 172.2 195.1 34.5% 13.3%o/w NBE credit to govt (gross) 135.6 160.1 182.7 194.7 221.2 21.1% 13.6%o/w Government deposits at NBE 19.0 19.9 37.7 22.5 26.1 -30.6% 16.1%

Source: NBE



21

Domestic financing

Total financing supplied within the economy grew to Birr 1.4 trillion, up around 22 percent from a year-ago.

The public sector’s use of total domestic financing (reflecting past financing patterns) remains dominant but has been declining, from 68 percent two years ago to 63 percent as of Dec 2019.

By instrument, the share of bond financing stands at 36 percent, reflecting large SOE borrowings via bond issues to the CBE

Bank loans by sectors:

The four sectors with the fastest credit growth were domestic trade, housing/construction, exports, and personal loans.

Industry remains the largest recipient of loans, reflecting SOE allocations at CBE.

Figure 8A: Domestic Borrowing by Sector and Instrument

June 2017 June 2018 June 2019 Sep 2019 Dec 2019 % TotalTotal Domestic Borrowing (Birr bns) 831 1,026 1,256 1,296 1,372 100.0%

By broad sector categories 831 1,026 1,256 1,296 1,372 100.0%Public sector borrowers 568 696 819 840 866 63.1%Private sector borrowers 264 329 436 455 506 36.9%

By borrower and instrument: 831 1,026 1,256 1,296 1,372 100.0%Government 278 341 388 400 397 28.9%

o/w Bank loans 43 54 54 54 49 3.6%o/w NBE loans (gross basis) 128 152 187 192 197 14.4%o/w Bonds held by banks 40 45 32 32 32 2.3%o/w Bonds held by NBE 8 8 7 7 7 0.5%o/w Bonds held by non-banks 60 81 107 115 112 8.2%

State Enterprises 290 356 432 440 469 34.2%o/w Bank loans 92 110 125 126 128 9.3%o/w NBE loans - - - - -o/w Bonds held by banks 198 246 307 314 341 24.8%o/w Bonds held by NBE -

Private sector 264 329 436 455 506 36.9%o/w Bank loans 231 284 378 394 444 32.4%o/w MFI loans 32 45 59 62 62 4.5%

By instrument type: 831 1,026 1,256 1,296 1,372 100.0%Loans 526 646 803 828 880 64.2%

o/w Bank loans 366 449 557 574 621 45.3%o/w NBE loans 128 152 187 192 197 14.4%o/w MFI loans 32 45 59 62 62 4.5%

Bonds 306 380 453 468 492 35.8%o/w Bonds held by banks 238 291 339 346 373 27.2%o/w Bonds held by NBE 8 8 7 7 7 0.5%o/w Bonds held by non-banks 60 81 107 115 112 8.2%

Source: Cepheus Research categorization based on NBE Quarterly Bulletin data. "Government" line-item includes regional government borrowing.

Figure 8B: Distribution of Bank Loans by Sector*

Outstanding Bank loans by Sector (Birr bns) June 2017 June 2018 Dec 2018 Dec 2019 % Change % TotalCentral Government 42.6 54.4 54.2 49.0 -9.5% 8%Agriculture 20.0 19.5 24.5 21.1 -14.1% 3%Industry 130.0 154.9 169.5 202.5 19.5% 33%Domestic Trade 41.8 44.9 56.0 81.5 45.5% 13%International Trade 52.2 78.0 89.3 117.5 31.6% 19%

of which: Exports 30.0 47.8 58.1 80.0 37.8% 13%of which: Imports 22.2 30.2 31.2 38.3 22.7% 6%

Hotels and Tourism 5.8 9.9 11.9 15.5 30.0% 2%Transport & Communication 14.4 13.8 13.3 12.4 -7.0% 2%Housing & Construction 38.0 43.6 41.5 59.0 42.1% 9%Mines, Power & Water Resources 0.2 0.2 1.5 1.7 9.8% 0%Others 16.4 23.0 8.4 10.4 23.0% 2%Personal 4.3 6.7 32.5 50.0 54.1% 8%

TOTAL LOANS BY BANKS* 365.6 449.0 502.6 621.3 23.6% 100%

Source: NBE, Quarterly Bulletin* Note this only covers loans provided by commercial banks, and thus excludes credit extended by banksin the form of bonds and also excludes credits given by NBE, MFIs, and non-banks.See Figure 8A for broader domestic financing sources, instruments and users.



22

Outstanding bond issuances:

SOE bond borrowing has essentially come to a stop in the last six months, with their outstanding bond issues up only slightly from Birr 339bn at end June 2019 to Birr 341bn at end December 2019.

Regional governments are seen to be repaying their bond debt on a net basis.

BANKING: Recent developments and outlook

Overall deposit growth has moderated to just 18 percent (year-on-year), and particularly so at CBE (16 percent year-on-year)

Loan growth of 32 percent suggests expanding activity levels in the economy, and especially in the private sector (to whom most private bank lending is provided).

Figure 9: Outstanding Bonds Issued as of December 2019

Jun-17 Jun-18 Dec 2018 Jun-19 Dec 2019Y-o-Y

% ChangeSix-month% Change

Total Bonds Outstanding (Birr bn) 237.8 291.4 304.4 338.6 340.9 12% 0.7%

Public Enterprises 198.2 245.5 256.1 306.8 316.7 24% 3.2%EEPCO 179.3 216.4 224.34 263.9 273.7 22% 3.7%Railways Corporation 18.9 29.2 31.79 42.9 42.9 35% 0.0%

Regional Government 39.6 45.9 48.2 31.8 24.2 -50% -23.7%Addis Ababa City Govt 39 45.3 47.7 31.2 23.8 -50% -23.7%Other Regions 0.6 0.6 0.6 0.6 0.4 -24% -22.7%

Source: NBE, Quarterly Bulletin

Figure 10A: Banking Trends (Birr bns)

Jun 2014 Jun 2015 Jun 2016 Jun 2017 Jun 2018 Mar-19 Jun 2019 Mar 2020Y-o-Y

% ChangeNine-Month

% ChangeBank deposits 292 367 437 568 729 837 899 990 18.3% 10.1%

CBE 200 248 290 366 453 504 541 582 15.5% 7.5%Private Banks 92 118 147 202 276 333 358 408 22.4% 13.9%

Bank loans outstanding 146 189 232 290 355 429 456 567 32.3% 24.4%CBE 93 115 141 157 177 193 197 243 25.9% 23.2%Private Banks 53 75 91 133 179 236 259 325 37.5% 25.3%

Other indicators--all banksAssets 364 460 575 745 914 1,069 1,165 1,310 22.6% 12.5%Paid-up capital 19 21 24 61 66 71.8 74 80 12.0% 8.8%Branches 1,991 2,500 3,145 3,888 4,442 5,104 5,164 5,875 15.1% 13.8%

Source: Bank Annual Reports and Bank Survey Data



23

Monetary developments and outlook… continued:

Looking ahead, the Govt-IMF macro program shows a planned loosening of monetary policy, with reserve money growth set to double (25% vs 12.5%) and broad money growth rising by one-and-a-half times previous plans (27% vs 18%).

To help finance the much larger deficit (see below), an increased allowance is being made for net credit to government: Birr 41bn vs a previously planned Birr 7.6bn

Liquidity support to private and public banks explains part of the planned increase in monetary growth. Approximately Birr 48bn in such liquidity and related support is being provided based on NBE announcements.

Table 10B: Monetary Program with Post-Corona Adjustments

Data in Birr mns FY 2018-19

Pre-corona Post-corona Pre-corona Post-coronaBroad Money

Broad money outstanding 886.7 1,046.6 1,125.9 1,247.4 1,265.1Growth in broad money 19.7% 18.0% 27.0% 19.2% 12.4%

Base MoneyReserve money outstanding 200.7 225.8 250.9 255.3 276.0Growth in reserve money 15.3% 12.5% 25.0% 13.0% 10.0%

Net Credit to GovernmentOutstanding stock, year-end 124.2 131.8 165.6 146.4 196.5Change during fiscal year 22.2 7.6 41.4 14.6 30.9Growth in Net Credit to Govt 21.8% 6.1% 33.3% 11.0% 18.7%

Source: IMF Staff Report, May 2020, Table 3 on monetary program, and Cepheus Research compilation

FY 2019-20 FY 2020-21

Table 10C: Central Bank Liquidity and Related Support

Cepheus Estimate:March 2020

Actual Outturns:March 2020

Liquidity support 46.9 48.0Private banks 30.1 15.0Public bank 16.8 33.0

Total liquidity support, Birr bn: 46.9 48.0In USD bns: 1.4$ 1.4$

In % GDP: 1.2% 1.2%

Source: NBE announcements, press reports, and Cepheus Research compilation



24

FISCAL POLICY: Recent developments

Revenue performance

Tax collections continued to post positive results (Birr 183bn in nine months), with the latest reading at end-March up 26 percent from last year.

Trade taxes, which are boosted by the faster depreciation, did particularly well with growth of 46 percent from year-ago levels—despite lower USD import levels.

Budget performance:

Full budget data (including expenditure outturns) are only available up to Dec 2019 and show spending growth below revenue growth, while the deficit appears to be in line with the year-total levels (Birr 85bn for the year).

Public debt, in USD terms:

For the second quarter in a row, total public debt is declining in level terms, and not just as a share of GDP.

Public debt remains roughly evenly split between external and domestic debt.

Figure 11: Revenue Performance, Birr bns

FY 2018-19Nine months

FY 2019-20Nine months % change

Taxes on domestic activity 88.9 100.7 13.2%Direct tax 47.5 … …Indirect tax 40.8 … …

Trade taxes 56.7 82.4 45.5%Customs tarrif and tax 54.9 … …Non tax revenue 1.7 … …

Lottery Sales 0.2 0.1 -7.2%

TAX REVENUE TOTAL: 145.7 183.2 25.7%

Source: Ministry of Revenue

Figure 12:Budget Performance, Birr bns

FY 2018-19H1

FY 2019-20H1

Percentchange

Total revenue and grants 109.9 138.5 26%Total Revenue 108.6 137.2 26%Grants 1.3 1.3 -1%

Total Expenditure 149.3 166.0 11%Current Expenditure 34.3 44.7 30%Capital Expenditure 42.4 51.8 22%Regional Transfers 72.6 69.5 -4%

Deficit, Birr bns -39.4 -27.5 -30%Deficit, Percent of GDP -1.5% -0.8% …GDP (Birr bns) 2,696 3,418 27%

Source: NBE--Full budget data available only until December 2019

Figure 13: Public Debt, USD bns

Dec-18 Mar-19 June 2019 Sept 2019 Dec-19 % of TotalTotal Public Debt 51.6$ 52.6$ 53.7$ 53.6$ 53.4$ 100.0%

External debt 26.8$ 26.9$ 27.0$ 26.8$ 27.7$ 51.8%Central Government 15.3$ 15.7$ 16.0$ 15.9$ 16.6$ 31.1%State Owned Enterprises 11.5$ 11.2$ 11.1$ 10.8$ 11.1$ 20.7%

Domestic Debt 24.7$ 25.6$ 26.7$ 26.8$ 25.7$ 48.2%Central Government 11.9$ 12.1$ 12.5$ 12.7$ 12.3$ 23.0%State Owned Enterprises 12.8$ 13.6$ 14.2$ 14.0$ 13.4$ 25.2%

Source: MoFEC Public Debt Bulletin



25

Public debt, relative to GDP:

Relative to this year’s anticipated GDP, public debt is now nearly 10 percentage points lower than it was 18 months ago.

External debt stocks:

Total external debt has moved slightly upwards in USD terms due to new loans contracted in the past year, but is down relative to GDP when compared to the start of the year.

Of the nearly $2bn in external debt service dues last year, most of it ($1.6bn or ~70%) was owed by state-owned enterprises.

By creditor, private lenders are owed the highest share of debt service, followed by bilateral creditors. If recent corona-related debt relief schemes cover just multilateral and bilateral creditors, then only about half of Ethiopia’s debt service obligations would be postponed through such debt relief.

Figure 15B: External Debt Service Payments, FY 2018-19

USD mnsAnnual external debt service dues: 1,995$

By payment type 1,995$Interest payments 620$Principal payments 1,375$

By debtor 1,995$Government 385$State Owned Enterprises 1,610$

By creditor 1,995$Multilateral creditors (IMF, WB, etc) 208$Bilateal creditors (incl China) 733$Private lenders (banks/bondholders) 1,054$

Source: MoFEC Public Debt Bulletin; Data for FY 2018-19

Figure 14: Public Debt, % GDPJune 2017 June 2018 Sept 2018 June 2019 Sept 2019 Dec 2019

Total Public Debt 56.0% 58.7% 52.4% 56.0% 49.3% 49.2%

External debt 28.5% 30.7% 27.2% 28.2% 24.7% 25.5%Central Government 15.9% 17.4% 15.5% 16.6% 14.7% 15.3%State Owned Enterprises 12.7% 13.3% 11.7% 11.6% 10.0% 10.2%

Domestic Debt 27.5% 28.0% 25.2% 27.8% 24.7% 23.7%Central Government 12.6% 13.1% 11.9% 13.1% 11.7% 11.3%State Owned Enterprises 14.8% 14.9% 13.3% 14.8% 12.9% 12.4%

Memo items:GDP, Birr bns 1,568 1,833 2,200 2,200 3,418 3,418Exchange rate, year avg 23.11 27.26 28.91 28.91 33.13 33.13GDP, USD bns 81.8$ 84.4$ 95.9$ 95.9$ 108.5$ 108.5$


Figure 15A: External Debt (Public Sector), In USD bns

June 2017 June 2018 Sept 2018 June 2019 Sept 2019 Dec 2019 % of TotalTotal External Debt of Public Sector, USD bns 23.3$ 25.9$ 26.1$ 27.0$ 26.8$ 27.7$ 100%

Government 13.0$ 14.7$ 14.8$ 16.0$ 15.9$ 16.6$ 60%EAL & Ethio-telecom 6.9$ 7.6$ 7.6$ 7.3$ 7.2$ 7.2$ 26%Other State Enterprises 3.4$ 3.6$ 3.7$ 3.8$ 3.7$ 3.8$ 14%

Total External Debt of Public Sector, % GDP 28.5% 30.7% 27.2% 28.4% 24.7% 25.5% 100.0%Government 15.9% 17.5% 15.5% 16.7% 14.7% 15.3% 60.0%EAL & Ethio-telecom 8.5% 9.0% 7.9% 7.6% 6.6% 6.7% 26.1%Other State Enterprises 4.2% 4.2% 3.8% 4.0% 3.4% 3.5% 13.8%

GDP, USD bns 81.8$ 84.4$ 95.9$ 95.9$ 108.5$ 108.5$ …




26

FISCAL OUTLOOK: Post-Covid Developments

The Government’s Corona Response Plan covers three distinct areas—emergency spending for health, food, nutrition, and shelter; support to the private sector; and accommodating foregone/lost revenues due to reduced business activity.

The emergency spending needs are areas where Ethiopia normally receives/allocates funding even in past years.

The budget deficit was expected to be Birr 85bn pre-corona, but is now projected to reach Birr 134bn (2.6% of GDP) due to extra corona related spending and foregone/lower revenue.

Seen over a two-year time frame, the cumulative budget deficit will be a high 7 percent of GDP.

Table 15C : COVID Financing Requirements Per Government Plans

Financing Needs for COVID Response per Govt Plans

USD mn Birr mn % Total % GDP

1 Emergency Resource Needs 1,641$ 54,974 100% 1.6%Food and Nutrition needs 635$ 21,273 39% 0.62%Health related spending 431$ 14,439 26% 0.42%Emergency Shelter/Non-food 282$ 9,447 17% 0.28%WASH 152$ 5,092 9% 0.15%Logistics 60$ 2,010 4% 0.06%Agriculture 24$ 804 1% 0.02%Nutrition 17$ 570 1% 0.02%Refugees 16$ 536 1% 0.02%Social Protection 15$ 503 1% 0.01%Education 7$ 235 0% 0.01%Management 2$ 67 0% 0.00%

2 Private sector support 1,829$ 61,265 100% 1.8%Support to Business and SMEs 1,000$ 33,500 55% 0.98%Protecting jobs 329$ 11,015 18% 0.32%BOP financing for private sector imports 500$ 16,750 27% 0.49%

3 Revenue loss 1,162$ 38,917 100% 1.1%Trade tax losses 388$ 12,998 33% 0.38%Indirect tax losses 129$ 4,335 11% 0.13%Employment tax losses 53$ 1,769 5% 0.05%Non-tax revenue losses 46$ 1,524 4% 0.04%Privatization proceeds foregone 546$ 18,291 47% 0.54%

GRAND TOTAL: 4,632$ 155,155 … 4.6%

Source: "COVID 19: Economic Impact Responses Assessment and Policy" and Cepheus Research compilation

Table 15D: Fiscal Impacts of COVID 19 and Deterioration in the Budget Deficit

FY 2019-20 FY 2020-21Birr mn Birr mn Birr mn USD mn % GDP

Net Fiscal Impacts: 49,540 55,722 105,262 3,142$ 2.6%

Net revenue impacts 11,931 23,743 35,674 1,065$ 0.9%Gross revenue impact 34,957 28,551 63,508 1,896$ 1.6%Extra grants received 23,026 4,808 27,834 831$ 0.7%

Net extra expenditure 37,609 31,979 69,588 2,077$ 1.7%

Memo items:

Previous budget deficit (pre-corona) 84,529 89,739 174,268 5,202$ 4.4%

Change in the budget deficit 49,540 55,722 105,262 3,142$ 2.6%

Revised budget deficit (post-corona) 134,070 145,461 279,531 8,344$ 7.0%

Source: IMF Staff Report, May 2020, Table 2A on the fiscal program. Cepheus Research projections of nominal GDP & exchange rate

Total for both fiscal years



27

Fiscal outlook… continued:

Financing of the large deficits is relying somewhat more on domestic borrowing though external loans of $2bn this year are also anticipated.

As of May 2020, and based on the IMF staff report, around Birr 32bn of the needed financing is still to be secured; part of this may be covered by forthcoming debt service relief expected from multilateral and bilateral creditors.

Figures reported by both the Government and IMF are nearly identical, though there are some compositional differences; our estimates of net required fiscal resources in our March 2020 research note were somewhat below these figures (2.3 percent vs 2.7 percent of GDP).

Table 15F: Fiscal Impacts of the Corona Virus (FY 2019-20 and FY 2020-21)

CepheusEstimate:

March 2020

Govt COVIDEcon Report:

April 2020

IMF StaffReport:

May 2020

Fiscal Impacts, Birr bns 91.9 106.7 105.3

Net Revenue decline 41.3 20.6 35.7Gross revenue decline 55.0 20.6 63.5Extra grants 13.7 - 27.8

Extra expenditure, net 50.6 86.1 69.6Gross expenditure increase … 99.4 93.6Reductions in other items … 13.3 24.0

Total fiscal impacts, In Birr bns: 91.9 106.7 105.3In USD bns: 2.7$ 3.1$ 3.1$

In % GDP: 2.3% 2.7% 2.6%

Note: Cephues Estimates reflect projections in March 2020 Corona Impacts Research NoteThe "Govt COVID Economic Report" is the 'Covid19: Economc Impact Responses Assessment and Policy" noteBOP financing to private sector is excluded as not budgetary item and privatization proceedsalso excluded from revenue as this is a financing item (per conventional classifications)

Table 15E: Budget Deficit following the COVID-19 Impacts: Total Amounts and Source of Financing

Birr mn USD mn % GDP Birr mn USD mn % GDPRevenue and Grants 413,334 13,126$ 12.1% 542,416 14,601$ 13.5%

Expenditure 547,403 17,383$ 16.0% 687,877 18,516$ 17.1%

Budget Deficit 134,070 4,258$ 3.9% 145,461 3,916$ 3.6%

External Borrowing, net 62,699 1,991$ 1.8% 40,634 1,094$ 1.0%External borrowing, gross 70,048 2,224$ 2.0% 53,716 1,446$ 1.3%

IMF Budget Support 13,000 413$ 0.4% - - -Foreign loans 57,048 1,812$ 1.7% 53,716 1,446$ 1.3%

Repayments on past loans (7,349) (233)$ -0.2% (13,082) (352)$ -0.3%

Domestic Borrowing, net 71,370 2,266$ 2.1% 60,880 1,639$ 1.5%From NBE, net 29,451 935$ 0.9% 10,441 281$ 0.3%From Commercial Banks, net 11,939 379$ 0.3% 20,440 550$ 0.5%From Non-banks (implied) 21,127 671$ 0.6% 29,999 808$ 0.7%Other Domestic--not yet identifed 8,853 281$ 0.3% - - -

Privatization proceeds - - - 43,948 1,183$ 1.1%

Memo items:Total financing not yet identified 32,320 1,026$ 0.9% - - -

External 23,467 745$ 0.7% - - -Domestic 8,853 281$ 0.3% - - -

Source: IMF Staff Report, May 2020, Table 2A and 3 on fiscal and monetary program respectively.Cepheus Research projections of nominal GDP and exchange rate used for data in USD terms and relative to GDP.

FY 2019-20 FY 2020-21



28

BALANCE OF PAYMENTS (BOP): Recent developments

Full balance of payments data are only available to Dec 2019, though some components (exports, imports, reserves) are available and reported here for end-March 2020.

The outturns for the first half of the fiscal year point to a notable improvement (from year-ago levels) in the trade deficit, but a drop-in remittances, official grants, and FDI.

Some of these six-month data, such as for grants, may reflect lumpy inflows and may thus reverse in subsequent quarters.

FX reserves:

Foreign exchange reserves were around $2.5bn at end-March 2020, down from nearly $3bn the previous quarter.

Large external debt service repayments appear to explain this drop, which has occurred despite the receipt of the IMF program’s first loan disbursement of $315mn.

Figure 16: Balance of Payment--recent outturns, latest available data

Balance of Payments in USD mnsFY 2018-19

H1FY 2019-20

H1Percentchange

Exports 1,212.3 1,333.5 10%Imports 8,118.4 7,566.3 -7%Trade Balance (6,906.1) (6,232.8) -10%

Services, net (6.3) 79.8 -1362%Non-factor services, net 222.3 370.8 67%

Exports of non-factor services 2,709.7 2,591.1 -4%Imports of non-factor services 2,487.4 2,220.3 -11%

Income, net (228.6) (291.0) 27%O/w Gross official int. payment 271.1 322.0 19%Dividend - -

Private transfers, net 3,227.7 2,932.4 -9%Remittances 2,894.1 2,439.2 -16%

Current account balance excluding grants (3,684.7) (3,220.6) -13%Official transfers, net 1,259.6 585.2 -54%

Current account balance including grants (2,425.0) (2,635.4) 9%

Capital account 3,200.2 2,218.5 -31%Official Long-term Capital, net 775.4 1,029.8 33%

Disbursements 855.9 1,124.0 31%Amortization 80.5 94.2 17%

Other public long-term capital 422.3 (205.1) -149%Private sector, long term 167.9 87.8 -48%Foreign Direct Investment, net 1,828.5 1,361.8 -26%Short term Capital 6.2 (55.7) -1006%

Errors and omissions (585.7) (544.8) -7%

Overall balance 189.5 (961.7) -608%

Financing (189.5) 961.7 -608%

Reserves [ Increase(-), Decrease (+)] (189.5) 961.7 -608%Central Bank (NFA) (135.2) 688.9 -610%

Asset (1,110.6) 450.2 -141%Liabilities 975.5 238.7 -76%

Commercial banks (NFA) (54.3) 272.8 -602%

Source: NBE Quarterly Bulletin

Figure 17: FX Reserve:, NBE and Commercial Banks (USD mns)

Source: NBE

$968 $905 $921$1,118

$1,011 $944 $987 $887$754 $750

$3,023$3,131

$2,847

$3,745$3,958 $3,920

$3,415

$2,597

$2,965

$2,450

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2017-18(Q2) 2017-18(Q3) 2017-18(Q4) 2018-19(Q1) 2018-19(Q2) 2018-19(Q3) 2018-19(Q4) 2019-20(Q1) 2019-20(Q2) 2019-20(Q3)

FX Reserve:, NBE and Commercial Banks (USD mns)

Banks NBE



29

TRADE PERFORMANCE: Recent developments

Export performance:

Exports are continuing to perform moderately well (10 percent growth), though this is somewhat below the 15 percent growth seen earlier in the fiscal year.

The top performers by dollar receipts continue to be coffee, flowers, and chat—each of which generated more than a quarter billion dollars in just nine months.

Among large-value exports, those with the best growth record this past quarter were flowers, fruits and vegetables, textiles, coffee, and chat.

The declines seen in two large export items—oilseeds and pulses—continues to hold back Ethiopia’s export growth. A strong increase in these two categories could push export growth to the high teens or above 20 percent.

Figure 18A: Export Performance

Ranked by USD levels this yearFY 2018-19

(Nine Month)FY 2019-20

(Nine Month)PercentChange

Total Exports 1,899.8 2,091.1 10.1%

Coffee 499.6 562.8 12.7%Flower 169.5 338.5 99.7%Chat 231.9 256.0 10.4%Oil Seeds 279.4 235.9 -15.6%Pulses 202.7 164.2 -19.0%Textile & Textile Products 108.9 141.9 30.3%Fruits & Vegetables 43.4 67.8 56.2%Leather and Leather Products 91.4 63.8 -30.2%Meat & Meat Products 67.1 52.9 -21.1%Elecricity 49.1 43.0 -12.5%Live Animals 31.8 41.2 29.5%Electronics 23.7 29.3 23.8%Gold 22.8 27.1 18.7%Spices 9.7 13.1 34.4%Chemicals & Construction Inputs 13.0 6.9 -47.0%Natural Gum 3.4 4.3 25.2%Cereals and Flour 2.2 2.5 15.7%Bees Wax 1.6 1.2 -23.0%Others 48.5 38.7 -20.3%

Source: MOTI, ERCA

Figure 18B: Export Performance--Ranked by Growth Rate

FY 2018-19Nine Month


Percentchange

Total Exports, USD mns 1,900 2,091 10.1%

Ranked by growth rate:

Flower 169.5 338.5 99.7%Fruits & Vegetables 43.4 67.8 56.2%Spices 9.7 13.1 34.4%Textile & Textile Products 108.9 141.9 30.3%Live Animals 31.8 41.2 29.5%Natural Gum 3.4 4.3 25.2%Electronics 23.7 29.3 23.8%Gold 22.8 27.1 18.7%Cereals and Flour 2.2 2.5 15.7%Coffee 499.6 562.8 12.7%Chat 231.9 256.0 10.4%Elecricity 49.1 43.0 -12.5%Oil Seeds 279.4 235.9 -15.6%Pulses 202.7 164.2 -19.0%Others 48.5 38.7 -20.3%Meat & Meat Products 67.1 52.9 -21.1%Bees Wax 1.6 1.2 -23.0%Leather and Leather Products 91.4 63.8 -30.2%Chemicals & Construction Inputs 13.0 6.9 -47.0%

Source: MOTI, ERCA



30

Trade performance… continued:

Coffee exports have continued to do well even since the onset of the corona pandemic.

Exports in April 2020 reached $104mn for the month, the highest level seen in a year and up 39 percent from year-ago levels. For Jan-April 2020, coffee exports were up by 26 percent versus the same four-month period last year.

Industrial park exports have declined slightly over the past two consecutive quarters, though they are up 30 percent from year-ago levels ($43mn in the latest quarter vs $33mn a year ago).

Figure 18D: Industrial Parks Exports: Quarterly Trends since 2018

Source:EIC

20

28

3336

33

38

47 4643

-

5

10

15

20

25

30

35

40

45

50

Mar 2018 June 2018 Sept 2018 Dec 2018 Mar 2019 June 2019 Sept 2019 Dec 2019 Mar 2020

Industrial Parks Exports($mns)

Figure 18C: Coffee Exports--Monthly Trends Since Year Ago ($mns)

Source: MOTI and press reports for April 2020 data

75

95

95

8187

64

5247

3443

57

97

104

-

20

40

60

80

100

120

Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20

Coffee Exports--Month Trends Since Year Ago



31

Trade performance… continued:

Overall import growth continues to be negative, though slightly less so than earlier in the fiscal year (now -4% vs -7% before). This would normally suggest weak or declining levels of economic activity.

However, excluding fuel imports and one-off aircraft purchases, import growth shows a more solid rate of 6 percent.

Consumer goods imports are flat in USD terms (and thus shrinking relative to GDP). “Other consumer goods” which were a large share of imports at $627mn last year and represent many discretionary items have fallen by 20 percent—likely reflecting their greater sensitivity to a more depreciated exchange rate.

Capital goods imports for industrial and agricultural goods continue to show positive growth, especially so for agricultural machinery.

Figure 19A: Import Performance


FY 2019-20Nine Month % Change

Total Imports 11,683.4 11,192.7 -4.2%

Raw Materials 121 126 3%Semi-finished Goods 2,031 2,359 16%

Chemicals 298 423 42%Fertilizers 278 367 32%Textile Materials 61 87 43%Others 1,394 1,482 6%

Fuel 1,969 1,779 -10%Crude Petroleum 0 0 97%Petroleum Products* 1,883 1,709 -9%Others 86 70 -18%

Capital Goods 4,136 3,362 -19%Transport 1,256 345 -73%Tyres for Heavy Vehicles 85 98 15%Heavy Road Motor Vehicles 278 175 -37%Aircraft 860 61 -93%Others 33 11 -66%

Agricultural 45 68 51%Industrial 2,835 2,949 4%

Consumer Goods 3,217 3,216 0%Durables 892 774 -13%Non-durables 2,325 2,441 5%Cereals 499 709 42%Other Food 450 439 -2%Medical & Pharmaceuticals 464 480 3%Textile Fabrics 285 312 9%Others 627 500 -20%Miscellaneous 209 351

Non-fuel, non-aircraft imports 8,854.02 9,351.76 6%

Figure 19B: Capital Goods Imports by sub-components



Percentchange

Capital Goods Imports 4,136 3,362 -18.7%

Of which:Transport capital goods 1,256 345 -73%

Aircraft imports 860 61 -93%Non-aircraft transport imports 396 284 -28%

Industrial capital goods 2,835 2,949 4%Agricultural capital goods 45 68 51%

Capital Goods excl transport 2,880 3,017 5%

Source: MOTI, ERCA



32

BALANCE OF PAYMENTS OUTLOOK: Post-Covid Developments

The IMF projects a balance of payments deterioration of over $1.9bn this year and $0.3bn next year, for a cumulative impact of $2.2bn over the two years (versus pre-corona projections).

Most of this deterioration is due to a drop in service exports, remittances, and FDI—which are only partly offset by much reduced imports.

The balance of payments outlook involves considerable uncertainty as a lot depends on judgements regarding the speed and scale of the global recovery in areas such as trade, travel, and remittances.

For perspective on some of the differing judgements possible on key BOP flows, we compare our projections to those in the latest IMF staff report. We note similar expectations on the current account (but with compositional differences), though show marked differences on the capital account, where we see more scope for net new borrowing to be more in line with recent norms.

The overall BOP deficits anticipated this year and next will be financed in part by exceptional financing from the IMF (not shown in the capital account, per conventions) as well as expected debt relief. Accordingly, fx reserve levels will not decline as implied by the BOP deficit figures shown here (since financing items are not included and debt relief also not shown).

Table 19C: Balance of Payments Impacts--IMF Projections

IMF BOP Projections--Anticipated Change from Pre-Corona Projections

FY 2019-20 FY 2020-21USD mn USD mn USD mn % GDP

Overall Balance of Payments (1,931)$ (273)$ (2,204)$ -2.0%

Current account--net impacts 1,018$ 74$ 1,092$ 1.0%Export of goods (485)$ (423)$ (908)$ -0.8%Export of services (1,894)$ (1,183)$ (3,077)$ -2.8%Imports of goods 3,033$ 4,123$ 7,156$ 6.6%Imports of services 2,087$ 1,076$ 3,163$ 2.9%Remittances & Private Transfers (2,108)$ (3,484)$ (5,592)$ -5.2%Official grants 316$ (121)$ 195$ 0.2%Other current account items 69$ 86$ 155$ 0.1%

Capital account--net impacts (2,949)$ (347)$ (3,296)$ -3.0%Foreign direct investment (2,844)$ (292)$ (3,136)$ -2.9%Net Government borrowing 396$ (50)$ 346$ 0.3%Net Public Sector borrowing (501)$ (5)$ (506)$ -0.5%Other capital account items - - - -

Financing Sources --Identified 1,426$ 45$ 1,471$ 1.4%IMF net 415$ - 415$ 0.4%Lower reserve accumulation 949$ 45$ 994$ 1.0%Secured debt reprofiling 62$ - 62$ 1.0%

Financing Sources--To be Identified 505$ 228$ 733$ 0.7%

Source: IMF Staff Report, May 2020, Table 4A and Cepheus Research compilation

Total for both Fiscal Yrs

Table 19D: Balance of Payments: IMF vs Cepheus Projections

Post-Corona BOP Projections

IMF Cepheus Diff IMF Cepheus Diff

Current account--net impacts (4,944)$ (4,927)$ 17$ (4,736)$ (5,104)$ (368)$Export of goods 2,452$ 2,587$ 135$ 2,817$ 2,716$ (101)$Imports of goods (13,364)$ (14,815)$ (1,451)$ (13,965)$ (14,670)$ (705)$Export of services 3,753$ 4,677$ 924$ 5,249$ 3,929$ (1,320)$Imports of services (3,795)$ (4,517)$ (722)$ (5,201)$ (3,975)$ 1,226$Net income account (603)$ (600)$ 3$ (588)$ (725)$ (137)$Remittances & Transfers 4,922$ 5,841$ 919$ 5,795$ 5,621$ (174)$Official grants 1,690$ 1,900$ 210$ 1,157$ 2,000$ 843$

Capital account--net impacts 2,668$ 4,113$ 1,445$ 4,486$ 6,247$ 1,761$Foreign direct investment 1,821$ 2,400$ 579$ 4,203$ 4,400$ 197$Net Government borrowing 1,514$ 1,757$ 243$ 1,024$ 1,747$ 723$Net Public Sector borrowing (667)$ (244)$ 423$ (741)$ (100)$ 641$Other capital account items -$ 200$ 200$ -$ 200$ 200$

Overall Balance of Payments (2,276)$ (814)$ 1,462$ (250)$ 1,143$ 1,393$

Source: IMF Staff Report, May 2020, Table 4A and Cepheus Research projections

FY 2019-20 FY 2020-21



33

ETHIOPIA’S SOVEREIGN BOND: Recent developments and outlook

Sovereign Bond Yields:

Ethiopia’s sovereign bond is now showing its highest yield since it was issued back in December 2014.

Ethiopia is not alone in seeing such a rapid and significant jump in yields, however, with most frontier and emerging markets witnessing increases of 4 to 8 percentage points over the past few months.

Sovereign Bond Prices:

Prices for the bonds are at record lows, and bondholders (who are mostly US-based asset managers) would thus have seen a drop in their holdings of near 18 percent over the past quarter.

The price drop reflects expectations that many developing countries will seek debt rescheduling and/or reduction over the coming months, and that this will potentially apply to private as well as official creditors.

Spread vs US Treasuries:

Spreads vs US Treasures have jumped in line with rising yields; the effective borrowing rate on the Ethiopian bond is thus now 10 percentage points higher than the US Treasury equivalent.

The larger gap reflects not just the rise in Ethiopia’s sovereign bond yield but also the drop in US 10-year Treasury yields—which are now just 0.65% versus 2.3% this time last year.

Figure 20: Ethiopia's Soveregn Bond--Yield to Maturity

Source: FactSet,* Data till May 8, 2020

6.41

5.71 5.70 5.74 5.67 5.51 5.50

4.85 4.75

5.28

9.38

10.06 10.11

4.50

5.50

6.50

7.50

8.50

9.50

10.50

May-19

Jun-1

9Jul-1

9

Aug-19

Sep-1

9Oct-

19

Nov-19

Dec-19

Jan-20

Feb-2

0

Mar-20

Apr-20

May-20

*

Ethiopia's Sovereign Bond--Yield to Maturity

Figure 21: Ethiopia's Sovereign Bond--End Month Prices


100.9

104.2 104.2 104.0 104.3 104.9 104.9

107.7 108.0105.62

89.7087.5 87.4

87.0

92.0

97.0

102.0

107.0

112.0

May-19

Jun-19

Jul-1

9

Aug-19

Sep-1

9Oct-

19

Nov-19

Dec-19

Jan-20

Feb-2

0

Mar-20

Apr-20

May-

20*

Ethiopia's Sovereign Bond--End Month Prices

Figure 22: Ethiopia's Sovereign Bond--Spread vs US Treasuries


448.2395.9 384.0

434.6 412.3 388.7 387.9317.3 343.4

435.8

896.0

971.2 979.7

310.0

410.0

510.0

610.0

710.0

810.0

910.0

1,010.0

1,110.0

May-

19

Jun-19

Jul-19

Aug-19

Sep-1

9Oct-

19

Nov-19

Dec-19

Jan-20

Feb-2

0

Mar-

20Apr-2

0

May-20

*

Ethiopia's Sovereign Bond--Spread vs US Treasuries



34

EXCHANGE RATE: Recent developments and outlook

Exchange rate trends:

The Birr exchange rate of 33.53 per USD at end-April 2020 is now 17 percent below its year-ago level.

While annual depreciation rates were near 6 percent in early 2019 and before, the annualized exchange rate depreciation has moved to a rate of 13-17 percent since December 2019.

The gap between the official and parallel rates has continued to narrow, though it still remains sizeable.

Figure 23A: Trends in Exchange Rate: Last 12 Months

Source: CBE FX Rates

28.77 28.91 29.03 29.15 29.28 29.43

30.62

31.8032.06 32.28

32.81

33.53

26.00

27.00

28.00

29.00

30.00

31.00

32.00

33.00

34.00

May-19Jun-19

Jul-19Aug-19

Sep-19Oct-1

9Nov-19

Dec-19Jan-20

Feb-20Mar-2

0Apr-2

0

Trends in Exchange Rate: Last 12 Months

Figure 23B: Gap between parallel and official market

Source: Cepheus Research

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

January

Febru

aryMarc

hApril

May June July

August

Septe

mber

Octobe

r

November

December

January

Febru

ary

March

Gap between parallel and official market



35

Exchange rate developments… continued:

After moderating in January and February (21 to 26 cents of monthly depreciation), the pace of Birr depreciation has picked up pace in the last two months and has been between 54 and 72 cents per month.

Looking ahead, we assume and expect the accelerated rate of monthly depreciation is being pursued by the central bank to prevent a rise in the real effective exchange rate (and loss of competitiveness) in the context of elevated inflation.

Accordingly, we anticipate a 50 to 60 cents pace of monthly depreciation to the end of the calendar year, and we thus see the exchange rate at just under 35 Birr/USD by end June 2020 and just under 38 Birr/USD by end Dec 2020.

Figure 24: Monthly Depreciations in Birr Cents

Source: CBE website FX Rates.

0.12 0.12 0.120.16

1.19 1.19

0.260.21

0.54

0.72

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20

Monthly Depreciations in Birr Cents

Monthly Depreciation Avg Jan 2019-Oct 2019=14 cents

Avg Nov 2019-Dec 2019=1.19 cents

January -Feb 2020=0.24 cents

Mar-April 2020=0.63 cents

Series6 Series7

Avg Jan 2019-Oct 2019=14 cents

Avg Nov 2019-Dec 2019=1.19 cents

January -Feb 2020=0.24 cents

Mar-April 2020=0.63 cents

Figure 25: Exchange Rate: Forecasts to End-2020

Actuals: End Month

BuyingRate:

Birr/USD

MonthlyChange:

In Birr

Depreciationfrom

year agoJuly 2019 29.03 0.12 6.1%August 2019 29.15 0.12 6.1%September 2019 29.28 0.12 6.1%

October 2019 29.43 0.16 6.1%November 2019 30.62 1.19 9.8%December 2019 31.80 1.19 13.4%January 2020 32.06 0.26 13.7%February 2020 32.28 0.21 13.9%March 2020 32.81 0.54 15.2%April 2020 33.53 0.72 17.1%

Projections: End MonthMay 2020 34.13 0.60 18.6%June 2020 34.73 0.60 20.1%July 2020 35.23 0.50 21.4%August 2020 35.73 0.50 22.6%September 2020 36.23 0.50 23.8%October 2020 36.73 0.50 24.8%November 2020 37.23 0.50 21.6%December 2020 37.73 0.50 18.6%

Source: CBE website for historical data and Cepheus Research for projections



36

ETHIOPIA--Macroeconomic Indicators For the Current and Upcoming Fiscal Year: Recent Projections and Latest Revisions

2018/19 2019/20 FY 2020/21 2019/20 FY 2020/21 2019/20 FY 2020/21Actual Initial Proj Initial Proj Revised Proj Revised Proj Change in Proj Change in Proj

Real Sector: GDP, Prices, and Investment9.0% 8.0% 7.5% 6.0% 5.0% -2.0% -2.5%

Agriculture growth 3.8% 4.5% 4.0% 4.3% 3.7% -0.2% -0.3%Industry growth 12.6% 12.0% 12.0% 11.0% 9.0% -1.0% -3.0%Services growth 11.0% 8.3% 7.5% 4.0% 3.5% -4.3% -4.0%

Inflation: CPI (end-of-period) 15.3% 13.3% 10.0% 18.7% 8.4% 5.4% -1.6%Inflation: CPI (period average) 12.6% 17.5% 10.0% 19.6% 12.2% 2.1% 2.2%

Nominal GDP growth 22.5% 26.9% 18.3% 26.8% 17.8% -0.1% -0.5%Nominal GDP level (Birr billions) 2,696.2 3,422.1 4,047.0 3,418.3 4,026.9 (3.8) (20.1)Nominal GDP level (USD billions) 95.9$ 108.4$ 114.5$ 108.3$ 106.7$ (0.1)$ (7.9)$GDP per capita (USD) 971.8$ 1,075.0$ 1,112.1$ 1,073.9$ 1,035.7$ (1.2)$ (76.4)$

Exchange rate (Birr/USD, end-of-period) 28.91 33.16 37.50 34.73 39.94 1.57 2.43Exchange rate (Birr/USD, year-average) 28.12 31.57 35.33 31.57 37.75 - 2.42Exchange rate annual depreciation (year-average) 7.2% 12.3% 13.1% 12.3% 19.6% 0.0% 6.5%

Investment-to-GDP ratio 35.2% 34.0% 36.5% 33.0% 32.0% -1.0% -4.5%By investor category:

Public sector investment-to-GDP ratio 11.0% 11.0% 10.5% 11.0% 10.5% 0.0% 0.0%Private sector investment-to-GDP ratio 24.2% 23.0% 26.0% 22.0% 21.5% -1.0% -4.5%

By source of financing:Domestic Savings-to-GDP ratio 24.0% 23.5% 24.5% 22.0% 19.0% -1.5% -5.5%External Savings-to-GDP ratio 11.2% 10.5% 12.0% 11.0% 13.0% 0.5% 1.0%

Banking Sector 2018/19 2019/20 FY 2020/21 2019/20 FY 2020/21 2019/20 FY 2020/21Deposits at all commercial banks (Br bn) 899 1,088 1,305 1,043 1,199 (45) (106)Loans by all commercial banks (Br bn) 456 593 759 570 696 (23) (63)NBE Bills held by all comm banks (Br bn) 89 85 68 70 53 (15) (15)Bonds held by all commercial banks (Br bn) 339 400 459 372 410 (27) (50)Total bank financing: Loans/Bills/Bonds (Br bn) 883 1,078 1,286 1,013 1,158 (65) (128)

Deposit-to-GDP ratio (%) 33.3% 31.8% 32.3% 30.5% 29.8% -1.3% -2.5%Total bank financing-to-Deposit ratio (%) 98.3% 99.0% 98.5% 97.1% 96.6% -2.0% -2.0%Total commercial bank financing-to-GDP ratio (%) 32.8% 31.5% 31.8% 29.6% 28.8% -1.9% -3.0%

Annual growth in bank deposits (%) 23.3% 21.0% 20.0% 16.0% 15.0% -5.0% -5.0%Annual growth in total bank financing (%) 23.2% 22.0% 19.4% 14.6% 14.4% -7.3% -5.0%

Fiscal Sector 2018/19 2019/20 FY 2020/21 2019/20 FY 2020/21 2019/20 FY 2020/21Revenue and grants (Birr bns) 344.9 425.3 566.2 413.3 542.5 (12.0) (23.7)

Revenue (Birr bns) 311.3 395.1 532.1 360.1 503.6 (35.0) (28.5)Grants (Birr bns) 33.6 30.2 34.1 53.2 38.9 23.0 4.8

Expenditure (Birr bns) 413.1 509.8 655.8 547.4 687.8 37.6 32.0Fiscal balance after grants (Birr bns) -68.2 -84.5 -89.6 -134.1 -145.3 (49.6) (55.7)

Revenue and grants (% GDP) 12.8% 12.4% 14.0% 12.1% 13.5% -0.3% -0.5%Expenditure (% GDP) 15.3% 14.9% 16.2% 16.0% 17.1% 1.1% 0.9%Fiscal balance after grants (% GDP) -2.5% -2.5% -2.2% -3.9% -3.6% -1.5% -1.4%

Public Sector Debt (% GDP) 56.0% 52.2% 52.1% 53.1% 55.9% 0.9% 3.8%External Debt (% GDP) 28.2% 26.3% 26.5% 26.4% 28.3% 0.0% 1.8%Domestic Debt (% GDP) 27.8% 25.8% 25.6% 26.7% 27.5% 0.9% 2.0%

External Sector: Balance of Payments 2018/19 2019/20 FY 2020/21 2019/20 FY 2020/21 2019/20 FY 2020/21Exports of goods (USD mn) 2,667 2,880 3,168 2,587 2,716 (293) (452)Exports of services (USD mns) 4,949 5,196 5,612 4,677 3,929 (520) (1,684)Imports of goods (USD mn) (15,112) (15,036) (16,239) (14,815) (14,670) 221 1,570

Oil imports (USD mn) (2,661) (2,475) (2,598) (2,209) (1,546) 266 1,052Non-Oil imports (USD mn) (12,451) (12,562) (13,641) (12,607) (13,124) (45) 517

Imports of services (USD mns) (4,910) (5,401) (5,941) (4,517) (3,975) 884 1,966- -Remittances (USD mn) 5,693 5,978 6,456 5,124 4,868 (854) (1,588)Private transfers (USD mn) 683 717 753 717 753 - -Foreign official grants (USD mn) 2,087 1,800 1,600 1,900 2,000 100 400Current account balance (USD mn) (4,534) (4,556) (5,407) (4,928) (5,105) (372) 302Current account balance (% GDP) -4.7% -4.2% -4.7% -4.6% -4.8% -0.3% -0.1%

Foreign direct investment (USD mn) 3,015 3,500 5,050 2,400 4,400 (1,100) (650)Net foreign borrowing: Govt (USDmn) 1,158 1,300 1,500 1,757 1,747 457 247Net foreign borrowing: Public Sector (USDmn) 1,326 200 300 (244) (100) (444) (400)Overall External Balance (USD mn) 58 644 1,743 (815) 1,142 (1,459) (601)

Overall External Balance, excl privatization delay 58 644 1,743 185 1,142 (459) (601)

Stock of Foreign Reserves, (USD mn) 3,415 4,059 5,802 2,600 3,742 (1,459) (2,060)Stock of Foreign Reserves, months imports 2.7 3.2 4.3 2.1 3.1 (1.1) (1.2)

External Debt Stock (Public Sector, USD bn) 27.0 28.5 30.3 28.6 30.2 0.0 (0.1)External Debt Stock (Public Sector, % GDP) 28.2% 26.3% 26.5% 26.4% 28.3% 0.0% 1.8%Growth of Goods Exports -6.1% 8.0% 10.0% -3.0% 5.0% -11.0% -5.0%Growth of Goods Imports -0.9% -0.5% 8.0% -2.0% -1.0% -1.5% -9.0%

Data Sources: NBE, MOFEC, CSA, and IMF for FY 2018-19; Cepheus Capital Research for projection years (with IMF fiscal data for baseline projection years).*Projections for 2019-20 and 2020-21 reflect our judgements under a 'limited virus spread scenario' as described in the text.

Real GDP growth

Rev Projs--CORONA IMPACTS*Previous Projections CHANGE in Cepheus Projections



37

ETHIOPIA--Key Macro Indicators: 2011 to 2021

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21Actual Actual Actual Actual Actual Actual Actual Actual Actual Revised Proj Revised Proj

Real Sector: GDP, Prices, and Investment11.4% 8.7% 9.9% 10.3% 10.4% 8.0% 10.2% 7.7% 9.0% 6.0% 5.0%

Agriculture growth 9.0% 4.9% 7.1% 5.4% 6.4% 2.3% 6.7% 3.5% 3.8% 4.3% 3.7%Industry growth 18.6% 19.7% 24.0% 17.1% 19.9% 20.5% 20.3% 12.2% 12.6% 11.0% 9.0%Services growth 17.0% 9.6% 9.0% 13.0% 11.1% 8.6% 7.2% 8.8% 11.0% 4.0% 3.5%

Inflation: CPI (end-of-period) 38.1% 20.7% 7.4% 8.5% 10.4% 7.5% 8.8% 14.7% 15.3% 18.7% 8.4%Inflation: CPI (period average) 18.1% 34.1% 13.5% 8.1% 7.7% 9.7% 7.2% 13.1% 12.6% 19.6% 12.2%

Nominal GDP growth 31.6% 45.1% 16.0% 22.4% 22.4% 20.8% 16.9% 20.0% 22.5% 26.8% 17.8%Nominal GDP level (Birr billions) 515.1 747.3 866.9 1,060.8 1,298.0 1,568.1 1,832.8 2,200.1 2,696.2 3,418.3 4,026.9Nominal GDP level (USD billions) 32.0$ 43.2$ 47.6$ 55.5$ 64.5$ 74.1$ 81.6$ 83.9$ 95.9$ 108.3$ 106.7$GDP per capita (USD) 516.4$ 554.0$ 631.1$ 715.8$ 803.9$ 864.6$ 869.3$ 971.8$ 1,073.9$ 1,035.7$

Exchange rate (Birr/USD, end-of-period) 16.82 17.73 18.64 19.58 20.57 21.80 23.11 27.26 28.91 34.73 39.94Exchange rate (Birr/USD, year-average) 16.10 17.28 18.23 19.11 20.13 21.16 22.47 26.23 28.12 31.57 37.75Exchange rate annual depreciation (year-average) 24.8% 7.3% 5.5% 4.8% 5.3% 5.1% 6.2% 16.7% 7.2% 12.3% 19.6%

Investment-to-GDP ratio 27.2% 34.6% 32.6% 38.0% 39.3% 37.3% 38.4% 34.7% 35.2% 33.0% 32.0%By investor category:

Public sector investment-to-GDP ratio 26.1% 24.3% 17.0% 17.6% 16.8% 14.4% 12.8% 11.0% 11.0% 10.5%Private sector investment-to-GDP ratio 8.5% 8.3% 21.0% 21.7% 20.5% 24.0% 21.9% 24.2% 22.0% 21.5%

By source of financing:Domestic Savings-to-GDP ratio 12.8% 16.5% 15.9% 20.5% 21.8% 22.4% 22.4% 24.1% 24.0% 22.0% 19.0%External Savings-to-GDP ratio 14.4% 18.1% 16.7% 17.5% 17.5% 14.9% 16.0% 10.6% 11.2% 11.0% 13.0%

Banking Sector 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 FY 2020/21Deposits at all commercial banks (Br bn) 143.3 189.3 237.8 292.9 366.5 436.7 567.7 729.1 899 1,043 1,199Loans by all commercial banks (Br bn) 61.9 85.4 116.5 145.6 189.3 232.1 289.8 355.4 456 570 696NBE Bills held by all comm banks (Br bn) 3.0 11.0 19.1 25.1 37.4 49.9 54.6 70.1 89 70 53Bonds held by all commercial banks (Br bn) 43.1 64.5 82.8 111.8 152.7 188.7 237.8 291.4 339 372 410Total bank financing: Loans/Bills/Bonds (Br bn) 108.0 160.9 218.4 282.5 379.4 470.7 582.2 716.9 883 1,013 1,158

Deposit-to-GDP ratio (%) 27.8% 25.3% 27.4% 27.6% 28.2% 27.8% 31.0% 33.1% 33.3% 30.5% 29.8%Total bank financing-to-Deposit ratio (%) 75.3% 85.0% 91.8% 96.5% 103.5% 107.8% 102.5% 98.3% 98.3% 97.1% 96.6%Total commercial bank financing-to-GDP ratio (%) 21.0% 21.5% 25.2% 26.6% 29.2% 30.0% 31.8% 32.6% 32.8% 29.6% 28.8%

Annual growth in bank deposits (%) 40.0% 32.1% 25.6% 23.2% 25.1% 19.2% 30.0% 28.4% 23.3% 16.0% 15.0%Annual growth in total bank financing (%) 50.7% 49.0% 35.7% 29.4% 34.3% 24.1% 23.7% 23.1% 23.2% 14.6% 14.4%


Real GDP growth



38

ETHIOPIA--Key Macro Indicators: 2011 to 2021

Fiscal Sector 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 FY 2020/21Revenue and grants (Birr bns) 85.6 115.7 137.2 158.1 199.6 243.7 269.1 287.6 344.9 413.3 542.5Expenditure (Birr bns) 93.8 124.4 153.9 185.5 230.5 272.9 329.3 354.2 413.1 547.4 687.8Fiscal balance after grants (Birr bns) -8.2 -8.7 -16.7 -27.4 -30.9 -29.3 -60.2 -66.6 -68.2 -134.1 -145.3

Revenue and grants (% GDP) 16.6% 15.5% 15.8% 14.9% 15.4% 15.5% 14.7% 13.1% 12.8% 12.1% 13.5%Expenditure (% GDP) 18.2% 16.6% 17.8% 17.5% 17.8% 17.4% 18.0% 16.1% 15.3% 16.0% 17.1%Fiscal balance after grants (% GDP) -1.6% -1.2% -1.9% -2.6% -2.4% -1.9% -3.3% -3.0% -2.5% -3.9% -3.6%

Public Sector Debt (% GDP) 36.2% 30.6% 41.9% 45.7% 52.9% 52.4% 55.2% 59.0% 56.0% 53.1% 55.9%External Debt (% GDP) 24.4% 20.6% 23.6% 25.2% 29.6% 29.0% 28.7% 30.9% 28.2% 26.4% 28.3%Domestic Debt (% GDP) 11.9% 10.1% 18.3% 20.5% 23.3% 23.4% 26.5% 28.1% 27.8% 26.7% 27.5%

External Sector: Balance of Payments 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 FY 2020/21Exports of goods (USD mn) 2,747 3,153 3,116 3,300 3,019 2,868 2,908 2,840 2,667 2,587 2,716Exports of services (USD mns) 2,586 2,811 2,853 3,174 3,028 3,196 3,331 4,220 4,949 4,677 3,929Imports of goods (USD mn) (8,253) (11,018) (11,461) (13,712) (16,458) (16,725) (15,803) (15,253) (15,112) (14,815) (14,670)

Oil imports (USD mn) (2,661) (2,209) (1,546)Non-Oil imports (USD mn) (12,451) (12,607) (13,124)

Imports of services (USD mns) (1,828) (2,639) (2,281) (2,461) (3,107) (3,442) (3,393) (3,983) (4,910) (4,517) (3,975)

Remittances (USD mn) 2,032 2,401 2,489 2,968 3,797 4,420 4,428 5,121 5,693 5,124 4,868Private transfers (USD mn) 715 845 1,086 1,071 1,085 2,008 1,058 953 683 717 753Foreign official grants (USD mn) 1,788 1,530 1,461 1,508 1,391 1,428 1,226 2,087 1,900 2,000Current account balance (USD mn) (210) (2,755) (2,781) (4,352) (7,401) (6,657) (6,528) (5,253) (4,534) (4,928) (5,105)Current account balance (% GDP) -0.7% -6.4% -5.8% -7.8% -11.5% -9.0% -8.0% -6.3% -4.7% -4.6% -4.8%

Foreign direct investment (USD mn) 1,243 1,072 1,232 1,467 2,202 3,269 4,171 3,723 3,015 2,400 4,400Net foreign borrowing: Govt (USDmn) 2,073 938 1,270 2,309 3,352 1,628 1,402 1,632 1,158 1,757 1,747Net foreign borrowing: Public Sector (USDmn) 231 882 332 2,347 1,052 626 937 1,326 (244) (100)Overall External Balance (USD mn) 1,446 (1,067) (7) (97) (521) (831) 659 (201) 58 (815) 1,142

Stock of Foreign Reserves, (USD mn) 3,044 2,262 2,368 2,496 3,249 3,402 3,197 2,843 3,415 2,600 3,742Stock of Foreign Reserves, months imports 4.4 2.5 2.5 2.2 2.4 2.4 2.4 2.2 2.7 2.1 3.1

External Debt Stock (Public Sector, USD bn) 7.8 8.9 11.2 14.0 19.1 21.5 23.4 25.9 27.0 28.6 30.2External Debt Stock (Public Sector, % GDP) 24.4% 20.6% 23.6% 25.2% 29.6% 29.0% 28.7% 30.9% 28.2% 26.4% 28.3%Growth of Goods Exports 37.1% 14.8% -1.2% 5.9% -8.5% -5.0% 1.4% -2.3% -6.1% -3.0% 5.0%Growth of Goods Imports -0.2% 33.5% 4.0% 19.6% 20.0% 1.6% -5.5% -3.5% -0.9% -2.0% -1.0%




39

The compilation of economic and business news reports for the first quarter of 2020 is available through the links below as well as on our website at: https://cepheuscapital.com/insights/

THE WEEK OF MARCH 24 – MARCH 31, 2020




THE WEEK OF FEBRUARY 25 – MARCH 3, 2020

THE WEEK OF FEBRUARY 18 – FEBRUARY 25, 2020



THE WEEK OF JANUARY 28 – FEBRUARY 4, 2020

THE WEEK OF JANUARY 21 – JANUARY 28, 2020



THE WEEK OF DECEMBER 31 – JANUARY 8, 2020

Economic and Business NewsFirst Quarter 2020: January 1 – March 31, 2020

https://cepheuscapital.com/insights/

https://cepheuscapital.com/the-week-of-march-24-march-31-2020/




https://cepheuscapital.com/the-week-of-february-25-march-3-2020/

https://cepheuscapital.com/the-week-of-february-18-february-25-2020/



https://cepheuscapital.com/the-week-of-january-28-february-4-2020/

https://cepheuscapital.com/the-week-of-january-14-january-21-2020/



https://cepheuscapital.com/the-week-of-december-31-january-8-2020/

first quarter 2020 ethiopia quarterly macroeconomic review ... · macro research ethiopia research...

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