Hon. Semereta Sewasew, State Minister of Finance, Ethiopia shared an overview of Ethiopia’s Sustainable Financing Strategy and opened the special event during the FfD4 first preparatory committee session on ‘Making Finance Work for People and Planet through Integrated National Financing Frameworks’ held on 23 July 202 in Addis Ababa, Ethiopia
The State Minister highlighted how Ethiopia is leveraging its financing strategy in addressing macroeconomic challenges, including foreign exchange shortages, external debt distress, and limited access to finance for the private sector. The strategy, developed through a government-led process, focuses on mobilizing and managing resources effectively, establishing resilient funding mechanisms, and diversifying funding sources. Key components include capital market development, digital transformation, green investments, and public-private partnerships. The governance structure, led by the Ministry of Finance, ensures effective collaboration and accountability.
The full transcript of the speech is attached below:
Ladies and gentlemen, good afternoon again and welcome to this important side event focused on the importance of an integrated national financing framework to make finance effective both for the people and the planet.
A warm welcome to our international guests as well as my sincere hope that you will continue to have a productive meeting and an enjoyable stay here in Addis Ababa. It is my distinct honour to address you today on the progress and the future direction of sustainable development financing and its implications for emerging economies like Ethiopia. As we prepare for the Fourth International Conference on Financing for Development, it is imperative to reflect on the progress that we've made in terms of reshaping the international financing development architecture.
This event, along with its preparatory phases, is crucial for setting objectives, fostering collaboration among different stakeholders, and ensuring discussions reflect global economic realities and the future needs of developing economies. Today, I would like to take this opportunity to reflect on the need for a new approach to developing financing, particularly highlighting Ethiopia's new sustainable financing strategy. As we look forward to the Fourth Financing for Development Conference scheduled for mid-next year, we stand at this pivotal moment in international economic cooperation.
This conference aims to address emerging issues and meet the needs of fulfilling the implementation of the 2030 Agenda which seeks to reform the international financial architecture to better serve the needs of nations and people. In light of the Addis Ababa Action Agenda, which was progressively committed to funding sustainable development, FfD4 is expected to evaluate the progress made of and address constraints in mobilizing financial resources globally to meet sustainable development goals. Ethiopia's sustainable financing strategy plays a pivotal role in this endeavor, providing a comprehensive roadmap to mobilizing and managing resources effectively. The strategy aims to establish strong resilient funding mechanisms and will reinforce our nation's future growth and development.
Excellencies, ladies and gentlemen, Ethiopia continues to progress towards prosperity, ensuring sustainable development financing is extremely crucial. Our ambitions necessitate a diversified financing approach that leverages a wide range of sources, both domestic and international, public and private, to bolster our economic growth and resilience. Our financing strategy serves as a comprehensive guide to realizing these goals. Today, I would like to outline the key aspects and components of this strategy.
Since the Addis Ababa Action Agenda in 2015, though the progress has been made in many aspects, the 2030 Agenda remains and we see a lot of setbacks in areas that have not shown significant improvement as expected. According to IMF's SDG financing tool, Ethiopia is projected to miss key SDG targets until 2053 under the business-as-usual scenario. Therefore, it's essential that we align our financial resources with our national development priorities and SDGs to expedite the collective development efforts that we have. Ethiopia's financing strategy was developed through a country-owned, government-led process examining Ethiopia's current financial landscape to identify our strengths, weaknesses and opportunities for enhancing financial flows and policy coherence.
The preparation of the strategy involved a consultative approach comprising an analysis of financial flows and their alignments with development priorities. The development finance diagnosis reveals several critical insights into Ethiopia's financial landscapes. Despite significant economic progress over the past decade, including a notable increase in GDP and a substantial reduction in poverty, our public-led investment growth model has faced several challenges. It's evidenced from the assessment that financing ambitions through public investment programs alone, primarily through domestic resources, and substantially from external borrowing, has led to macroeconomic imbalance, including foreign exchange shortage, external debt distress, finance sector vulnerabilities, limited access to finance for the private sector and high inflation.
Furthermore, inadequate structural transformation and limited private sector development hinder job creation and economic diversification. In response to this challenge, we have been implementing a series of homegrown economic reform programs that are aimed at addressing macroeconomic and structural issues, achieving notable success despite various disruptions. Currently, we're implementing the second phase of our homegrown economic development program and this is expected to sustain and upscale the first phase of our reform package and to address the persistent macroeconomic instability challenges such as inflation, budget deficits, deficit risks, unemployment, foreign exchange shortage.
We recognize that the current development financing needs are vast and necessitate a new and innovative financing framework to enable us to achieve our ambitious goals, the ten-year development plans that we have, the reform objectives, and the post-conflict recovery goals that we have in a resilient and sustainable manner. The development finance has been identified and estimated to be around 440 billion and will be required over the next several fiscal years to achieve our targets.
The resource requirement exceeds current trends in public investments. Therefore, our strategy is designed to look for a way that will allow us to effectively mobilize and manage resources establish strong and resilient funding mechanisms to support Ethiopia's future growth and development.
Excellencies ladies and gentlemen, Ethiopia's pursuit of a new sustainable development financing model is driven by the need to overcome persistent challenges and achieve ambitious goals centred on the concept of the right financing. This approach will aim to invigorate innovative financing instruments across key sectors, leveraging the depth of financial capital markets. By adopting this strategy, we seek to optimize public funds by attracting commercial capital and capitalizing private investments. Our financing strategy is strategically positioned with the ongoing deep structural reforms as Ethiopia undertakes debt restructuring and negotiates with the IMF.
The financing strategy focuses on closing the sustainable development financing gap and positioning itself as a primary financing strategy for the ongoing three years plan that we have as a country. The key entry points include capital market development by establishing an infrastructure like a stock exchange and promoting a robust bond market. Reforms in state-owned enterprise digital transformation initiatives and the efforts to address financing gaps for medium and small enterprises are prioritized under our financing strategy.
Furthermore, by enhancing capabilities and promoting green investments, we aim to build a resilient and environmentally sustainable economy. Diversifying funding sources beyond the conventional public sector mechanisms is prioritized, encompassing commercial capital and financial tools like public-private partnerships, blended finance investments, green bonds and diaspora bonds. Priority investment areas include accelerating digital modernization to boost revenue collection efficiently and combat tax evasion, as well as integrating digital technologies across sectors for fostering efficiency and digitalizing entrepreneurship.
Reducing the public sector footprint and enhancing the efficiency and privatization of SOEs (state-owned enterprises) is essential to create the fiscal space that we need and improve the returns on public investments. The roadmap also emphasizes a shift from the traditional debt-focused and a public investment-centred infrastructure investment to innovate and encourage private sector financing instruments. Incorporating sustainable finance into sector plans across sectors is also a critical component. Our proposed financing strategy architecture aims to address structural constraints by promoting resilience and aligning financial flows with long-term sustainability goals.
The roadmap aims to chart long-term financial instruments alongside immediate ones, each for sectors to utilize. For instance, urban investment funds and real estate investment trusts are proposed for the urban development sector to enable sustained urban growth and development. Strategic investment funds, mining bonds, joint ventures are earmarked for the mining and petroleum sector, enhancing investments in these crucial sectors for our country. The proposed level of transformation and development of financing requires a series of changes across policy, institutions and systems in different sectors.
Establishing a robust governance and coordination framework is essential. The governance structure for implementing the financial strategy or design to ensure effective collaboration, transparency and accountability across government entities and stakeholders. At the forefront of this framework is the Ministry of Finance, tasked with the need and coordinating and the implementation of these efforts. Institutionalizing public-private dialogue is also an integral part of the strategy governance aiming to harness private sector expertise, resources and innovative financing solutions.
The collaborative approach not only enhances the effectiveness of implementation efforts, but also fosters a conducive environment for private sector investments and economic growth. Integrating the financing strategy with the existing policymaking process ensures coherence and synergy with Ethiopia's broader economic strategies and development plans. This alignment is essential for maximizing the impact of financing initiatives, promoting inclusive growth, and advancing Ethiopia's long-term development aspirations.
Ladies and gentlemen, as I conclude, I'd like to urge all our stakeholders, government entities, private sector partners, international donors and civil society to unite with a renewed vigour and shared purpose as we approach the 4th International Conference on Financing for Development. Your engagement, collaboration and wavering commitments are not only vital for the successful implementation of Ethiopia's sustainable financial strategy but also for redefining the global development financing architecture and landscape. Together we can build a resilient, inclusive and prosperous Ethiopia, serving as a model for sustainable progress for the world.
I wish you all successful deliberation. I thank you.