|<br><br><br><br><br>Refor<br>_Real a_<br><br>|Broad money grows at a slightly higher pace than reserve money based on an estimate of the<br>changes in money multiplier over time. The money multiplieris projected to increase from 4.3<br>in 2017/18 to 6.2 by 2023/24<br>Other items have net growth of 10 percent on average, in line with recent trends in the banks’<br>profits and capital expansion<br>Claims on government are growing consistent with the baseline fiscal projections (see above)<br>Claims on SOEs are growing by an average of 23 percent in line with recent trends<br>Claims on the private sector are calculated as the residual available liquidities and grow at 22<br>percent<br>m scenario during 2019/20 – 2023/24 predicated on the following changes:<br>_nd price developments_<br>Although financial liberalization is expected to stimulate private sector growth and foster GDP<br>growth, the scenario assumes that real variables remain unchanged at least during the<br>projection period, except for imports and exports that are adjusted to reflect the effects of the<br>real depreciation (see below) and the gradual substitution of imports by the private sector’s<br>increased access to credit (see below).<br>Inflation rate target set at 6 percent (instead of 8 percent), as proposed new NBE policy|
|---|---|
|_Fiscal_|_policy_|
|<br><br><br>|The interest rate on all T‐bills increases gradually to positive real yield in three years (3 percent<br>in 2019/20, 5 percent in 2020/21, and 1 percentage point above the inflation rate in subsequent<br>years; i.e. 7 percent in 2021/22 onwards)<br>The T‐bills holdings of the social security agencies and other public institutions are gradually<br>rolled over at the new T‐bill rates to reach 100 percent in 3 years (25 percent in 2019/20, 35<br>percent in 2020/21, and 40 percent in 2021/22)<br>The government net borrowing from the NBE is phased out over the period (birr 25 billion in<br>2019/20 and a reduction of birr 5 billion in each subsequent year to zero in 2024/25). The<br>existing stock of NBE claims on government will not be affected and will remain subject to their<br>current terms and conditions<br>The foregone NBE direct advances are financed by T‐Bill sales to commercial banks at the new<br>T‐bill rates|
|_Mone_|_tary and exchange policy_|
|<br>|The overvaluation of the birr is corrected over three years. Assuming a 2 percentage points<br>continued annual price differential between Ethiopia and its main trading partners, the nominal<br>exchange rate of birr per US$ is assumed to depreciate at the annual rate of 12 percent during<br>2019/20 ‐ 2021/22. Such a policy is expected to be adjusted in subsequent years consistent<br>with the proposed NBE target of foreign reserves accumulation.<br>Net foreign assets of the NBE are targeted to increase gradually, consistent with the impact of<br>real depreciation of the birr and financial liberalization measures. The cumulative additional<br>NBE’s NFA could amount to US$1.6 billion during the 5‐year period (i.e., an annual average<br>increase of US$320 million)|
|<br>|<br>NBE‐bills directive on the 27‐percent rule phases out gradually in three years (20 percent in<br>2019/20, 10 percent in 2020/21, and zero in 2021/22 and beyond)<br>Commercial banks are free toparticipate in the T‐bill market|

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