Ethiopia, with a population of about 85 million (2011), is the second-most populous country in Sub-Saharan Africa. One of the world’s oldest civilizations, Ethiopia is also one of the world’s poorest countries.
At US$370, Ethiopia's per capita income is much lower than the developing Sub-Saharan African average of US$1,257 (FY 2011), ranking it as the sixth poorest country in the world (GNI, Atlas Method).
After the major drought in 2002/03 that resulted in gross domestic product (GDP) contraction, Ethiopia has been one of the fastest growing economies in Africa. As indicated in the Ethiopia Economic Update (Nov 2012) an average real GDP growth of 10.4 over the last eight consecutive years. Nevertheless, its robust growth performance and considerable development gains came under threat during 2008 and 2011 with the emergence of twin macroeconomic challenges of high inflation and a difficult balance of payments situation. The problem was exacerbated by the high fuel and food prices in the global market.
Ethiopia pursues a public sector-led growth strategy that focuses on promoting growth through high public investment supported partly by low nominal interest rates.
While the strategy has contributed to robust economic growth in the past, recent developments indicate a buildup of vulnerabilities which need to be addressed in order to sustain this economic growth. The initial double digits growth rates have now manifested slightly lower but remain at high single-digit levels. The economy is expected to stabilize at around seven to eight percent in 2012, largely owing to improved performance in the agriculture sector.
High inflation registered in the last few year has persistently showed declining trend. Headline inflation rates, which peaked at 40% in August 2011, started to ease at the end of last year and reached 12.9% in December 2012.
The reduction in inflation rates reflects the tightening fiscal stance and monetary base growth induced by the Government of Ethiopia (GoE) in the last fiscal year in addition to slowdown in global food and fuel prices. Despite the continued robust increases in goods exports and remittances, the current account deficit deteriorated in 2011-2012 contrasting the surplus recorded in 2010-2011 due to a front loading of import of capital goods the previous year.
The developments in 2011-2012 largely reflect a recovery of imports of capital goods, an increase in consumer goods imports, and a weakening of the services balance due to a surge in service imports.
Monetary policy in 2011-2012 has largely been geared toward lowering inflation with the implementation of the base money nominal anchor. Annual base money growth at end of August 2012 slowed to -1.4% as the central bank has ceased providing new direct credit to the government since July 2011 and has been selling foreign reserves (through June 2012) to achieve a base money contraction target of four percent for the fiscal year.
However, the lowering of the reserve requirement ratio in early January from 15% to 10% weakens the tightening effect of the base money contraction. Broad money supply at end-August 2012 grew by 28% year-on-year on account of strong credit growth to public enterprises and credit to private sector to some extent. Credit to government for budgetary financing declined in August by six percent.
Growth prospects according to the International Monetary Fund (IMF) remain robust. While inflation is a continuing concern, real GDP growth is projected to remain relatively strong (at 6.5%) in subsequent years under the continuation of current policies.
In order to sustain strong growth and the current disinflation process and to address emerging risks and vulnerabilities, the recommendation is to center on achieving low inflation, maintaining financial sector stability, increasing the role of the private sector in economic activities, and managing risks associated with the current public investment plan.
Political Context
Following the death in August 2012 of Prime Minister Meles Zenawi, who had led the government since 1991, the appointment of his successor Hailemariam Dessalegn marked a historical moment in the country’s politics. For the first time in its modern history, Ethiopia undertook a peaceful and constitutional transition of power.
For much of the 20th century, Ethiopia was ruled by highly centralized governments. The current ruling party, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) has governed Ethiopia since 1991.
Since taking power, the EPRDF has led an ambitious reform effort to initiate a transition to a more democratic system of governance and decentralize authority. This has involved devolving powers and mandates first to regional states, and then to woredas, or district authorities, and kebeles, or village authorities.
Although the formal Ethiopian state structure has been transformed from a highly centralized system to a federal and increasingly decentralized one, a number of challenges remain. The national elections in 2005 and 2010, and the largely uncontested local elections in April 2008, illustrated the fragility of the democratic transition, the dominance of the EPRDF, and the weakened state of the opposition.
The May 2010 parliamentary elections resulted in a 99.6% victory for the ruling EPRDF and its allies, reducing the opposition from 174 to only two seats in the 547 member lower house. The next national elections are due in 2015.
In January 2009, the Ethiopian Parliament passed legislation to regulate civil society organizations (CSOs). While many CSOs had long argued for a new and coherent framework,
the new law is restrictive in demarcating areas of operations for different types of CSOs (for example by excluding those receiving more than 10% of funding from external sources from many areas of activity).
The government and the Development Assistance Group (DAG), comprising bilateral and multilateral donors, have agreed that the implementation of the CSO law will be reviewed regularly through their joint High-Level Forum structure.
Development Challenges
The main challenge for Ethiopia is to continue and accelerate the progress made in recent years toward the Millennium Development Goals (MDGs) and to address the causes of poverty among its population.
The government is already devoting a very high share of its budget to pro-poor programs and investments. Large scale donor support will continue to provide a vital contribution in the near-term to finance the levels of spending needed to meet these challenges. However, even if donor support is increased, using aid effectively will require Ethiopia to improve governance, empower local authorities, and become more accountable to its citizens.
Over the past two decades, there has been significant progress in key human development indicators: primary school enrollments have quadrupled, child mortality has been cut in half, and the number of people with access to clean water has more than doubled.
More recently, poverty reduction has accelerated. The poverty headcount measured by nationally representative household surveys was 44% in 1999-2000, but fell to 39% in 2004-2005 and further down to 30% in 2010-2011.
These gains, together with more recent moves to strengthen the fight against malaria and HIV/AIDS, paint a picture of improved well-being in Ethiopia. Notwithstanding the progress in critical aspects of human development, Ethiopia needs considerable investment and improved policies to achieve some of the Millennium Development Goals by 2015, given the country’s low starting point.
The Government of Ethiopia’s current five-year development plan (2010/11-2014/15), the Growth and Transformation Plan (GTP), is geared towards fostering broad-based development in a sustainable manner to achieve the MDGs. The GTP envisions a major leap in terms of not only economic structure and income levels but also the level of social indicators. Key goals include:
Agricultural production is to double, to ensure food security in Ethiopia for the first time;
An increased contribution from the industrial sector, particularly focused on increased production in sugar, textiles, leather products and cement;
Foreign exchange reserves are projected to increase and the Birr is to depreciate by five percent against the dollar each year;
The roads network should increase from 49,000 km to 64,500 km by 2015;
Power generation capacity will increase from the current 2,000 MW to 8,000 MW, and the number of customers from the current two million to four million by 2015;
Construction of 2,395 km of railway line; and,
Achievement of all
The plan also aims to reduce the maternal mortality rate by more than half from 590 per 100,000 to 267 per 100,000. While some aims are extremely ambitious, the direction of the Growth and Transformation Plan (GTP) is consistent with the core priorities of the World Bank’s Strategy for Africa’s Future and responds to the needs of the country. This plan is the anchor for the Bank’s new Country Partnership Strategy.
Last updated January 2013
reported by world bank
No comments:
Post a Comment