Figure 1: Current Account Balance in Ethiopia (2016/17-2023/24)
Source: IMF 2020, Ethiopia 2019 Article IV Consultation. Note: (*) Figures from 2019/20 onwards are projections from the IMF, 2020.
Total merchandise imports to Ethiopia decreased to USD 15.2 billion in 2018, from an annual average of USD 16.5 billion for 2015 to 2017[1]. Exports moderated to USD 2.8 billion in 2018 from an annual average of USD 3.0 billion for 2015 to 2017[2]. The slower growth in exports has deteriorated Ethiopia’s current account balance from a deficit averaging -USD 5.4 billion (approx. -6.2% of GDP) for 2016/17 to 2018/19, to a deficit of -USD 6.0 billion (approx. -5.5% of GDP) in 2019/20[3]. The lower export earnings have affected Ethiopia’s balance of payments and gross official reserves.
Figure 2: Capital and Financial Account Balance in Ethiopia (2016/17-2023/24)
Source: IMF 2020, Ethiopia 2019 Article IV Consultation. Note: (*) Figures from 2019/20 onwards are projections from the IMF, 2020.
Ethiopia’s capital and financial account balance improved from a surplus (net inflows) averaging USD 6.4 billion (approx. 3.9% of GDP) for 2016/17 to 2018/19, to a surplus of USD 5.6 billion (approx. 5.2% of GDP) in 2019/20[4]. The balance of payments deteriorated from an average of USD 171.7 million (approx. 0.2% of GDP) for 2016/17 to 2018/19, to a deficit of -USD 346.0 million (approx. -0.3% of GDP) in 2019/20[5]. However, Ethiopia’s gross official reserves increased from USD 3.2 billion in 2016/17 to USD 3.4 billion in 2018/19, before continuing to increase to USD 4.0 billion in 2019/20[6]. During this period, Ethiopia experienced persistent inward FDI inflows.
Figure 3: Gross Official Reserves and Balance of Payment in Ethiopia (2016/17-2023/24)
Source: IMF 2020, Ethiopia 2019 Article IV Consultation. Note: (*) Figures from 2019/20 onwards are projections from the IMF, 2020.
Inward FDI inflows increased from USD 2.6 billion in 2015 to USD 4.0 billion in 2017, before deteriorating to USD 3.3 billion in 2018[7]. As a result, Ethiopia’s inward FDI stock increased from an average of USD 14.9 billion for 2015 to 2017, to USD 22.3 billion in 2018[8]. Ethiopian citizens have no investments abroad which also suggests that the country is reliant on remittances from its citizens abroad to balance its international payments.
Figure 4: Inward Foreign Direct Investment in Ethiopia (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Personal remittance receipts decreased from USD 1.1 billion in 2015 to USD 393.0 million in 2017, before recovering to USD 412.2 million in 2018[9]. Ethiopia does not have any outward FDI stock during this period[10]. These remittance flows have improved Ethiopia’s balance of payment but have no impact on the country’s net international FDI position.
Figure 5: Outward Foreign Direct Investment from Ethiopia (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Ethiopia’s balance of payment has been supported by persistent inward FDI inflows. However, the country has received decreased personal remittance receipts from its diaspora which contributes to balance its international payments. Ethiopia’s net international FDI position deteriorated from net liabilities amounting to an average of -USD 18.5 billion (approx. -21.0% of GDP) for 2015 to 2017, to net liabilities amounting to -USD 25.6 billion (approx. -23.5% of GDP) in 2018[11].
Figure 6: International Foreign Direct Investment Position in Ethiopia (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
At these levels Ethiopia’s foreign liabilities remain sustainable yet significant as a proportion of GDP. Given the very narrow domestic capital markets, Ethiopia should focus on attracting inward FDI in sectors that will increase its productive capacity and diversify its exports because the country is still heavily dependent on agriculture-based exports. Nevertheless, Ethiopia’s balance of payments is projected to improve to a surplus in the medium-term, which is projected to support growth in gross official reserves.
The consistently narrowing current account deficit should support continued improvement of Ethiopia’s balance of payments in the forward-looking medium-term despite fluctuations in inward FDI inflows. The current account balance is projected to improve from a deficit of -USD 6.0 billion (approx. -5.5% of GDP) in 2019/20 to a deficit averaging -USD 4.6 billion (approx. -4.2% of GDP) from 2020/21 to 2023/24[12]. Ethiopia’s capital and financial account balance is projected to deteriorate to a surplus (net inflows) averaging USD 4.9 billion (approx. 4.4% of GDP) from 2020/21 to 2023/24[13]. Therefore, the balance of payment is projected to improve from a surplus of USD 22.0 million in 2020/21 to a surplus of USD 1.7 billion in 2023/24, which is equivalent to an average of USD 337.8 million (approx. 0.3% of GDP)[14]. Thus, Ethiopia’s gross official reserves are projected to increase from USD 4.0 billion in 2019/20 to an average of USD 8.5 billion from 2020/21 to 2023/24[15].
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020]; IMF 2018. Ethiopia 2018 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, ibid.
[5] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, ibid. There are relatively significant errors and omissions in Ethiopia’s balance of payments data equivalent to: USD 303.0 million in 2016, -USD 1.4 billion in 2017 and -USD 1.5 billion in 2018.
[6] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, ibid.; IMF 2018. Ethiopia 2018 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, ibid.
[13] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, ibid.
[14] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, ibid.
[15] IMF 2020. Ethiopia Request for Disbursement Under the Rapid Credit Facility, ibid.
