Leveraging Enhanced SDR Allocations to Finance Resilient Economic Recovery in Ethiopia

Ethiopias economy has been hit by a series of internal and external shocks over the last few years. The combined effect of the Covid-19 pandemic, the Russia-Ukraine war, domestic conflict and drought have put the country on a lower growth trajectory. Capital investment has plummeted. Budget deficit and Balance of Payment(BoP) deficit have widened and its external debt position has been on high risk of distress. The country has put austerity measures to meet its international debt obligations. Debt servicing is taking a toll on important social and economic sectors. This can be seen by the crowding out effect of debt servicing over other sectors. Ethiopias budget for servicing public debt in 2022/23 exceeds the combined budget for health, education, water and energy, agricultural development, trade and industry. The budget for servicing public debt in 2022/23 is three times larger than the previous year. As a result, the country is sliding backwards from the important economic and social gains of the previous two decades. Poverty rates are rising. Moreover, Ethiopias performance towards achieving the SDGs has been poor and ranked 144th among 166 countries. Given a multitude of external and domestic shocks Ethiopia has been going through, it would benefit from a new special drawing rights (SDR) allocation or rechanneling of excess SDR. However, given the sheer size of the current liquidity crunch and financing needs for its long term recovery, a new allocation based on the current IMF quota would only be a small fraction of the countrys needs.