The Ethiopian government has announced plans to secure $5 billion in new external financing for the 2019 fiscal year as part of its ongoing macroeconomic reform program.
According to a newly released report by the International Monetary Fund (IMF), the government has also committed to a series of significant tax reforms and subsidy removals to be implemented in the coming months.
The IMF report highlights the government’s pledge to drastically increase tax revenue and phase out all economic subsidies. A key pillar of this strategy is the full removal of fuel subsidies.
In the 2019 fiscal year, fuel prices are set to be fully liberalized, with the government aiming to collect 176 billion birr from oil-related taxes alone.
This revenue target includes 93 billion birr from Value Added Tax (VAT), 80 billion birr from excise taxes, and 3 billion birr from other indirect domestic taxes.
To support this transition, the capital of the Ethiopian Petroleum Supply Enterprise will be increased by 286 billion birr. This capitalization is intended to shift the enterprise toward a new procurement system, allowing it to pay suppliers directly.
Further tax reforms, scheduled for implementation by December 2019, include the conversion of existing investment tax incentives into standard tax obligations.
New excise tax rates are set to be introduced on alcohol, tobacco, and vehicle ownership. Additionally, the government is preparing to implement a new real estate and property tax system, with valuation and registration exercises already underway in major cities to capture approximately 0.3% of the country’s GDP.
The government also intends to shift state-owned enterprises toward a profit-oriented model, noting that any public service obligations will henceforth be covered directly by the national budget.
Regarding external debt, the government plans to secure $5 billion in new financing. While the majority of this will come from multilateral lenders at low interest rates, the IMF has granted an exception for a $950 million commercial loan specifically to complete the Koysha Hydroelectric Dam project.
This marks a departure from the government’s prior commitment to avoid new commercial borrowing under its four-year IMF program. Meanwhile, negotiations are ongoing to restructure the country's external debt, including its Eurobond, with a goal to reach agreements with all creditors by December 2019.
Despite projections of 10.2% economic growth, the IMF report remains silent on the potential social and economic impact these aggressive tax and price adjustments may have on the public and the business community.
Instead, the report identifies internal conflicts, regional instability, and potential supply chain disruptions in global trade as the primary risks that could threaten the successful implementation of these reforms.
