With about 123 million people (2022), Ethiopia is the second-most populous nation in Africa after Nigeria and one of the fastest-growing economies in the region, with an estimated 6.4% growth in FY2021/22. Though considered as one of the poorest countries with a per capita gross national income of $1,020, Ethiopia aims to reach lower-middle-income status by 2025.
Ethiopia’s strong growth rate builds on a longer-term record of growth over the past 15 years, where the country’s economy grew at an average of nearly 10% per year, one of the highest rates in the world. Among other factors, growth was led by capital accumulation, in particular through public infrastructure investments.
Ethiopia’s real gross domestic product (GDP) growth slowed down from FY 2019/20 to FY 2021/22 due to multiple shocks, including COVID-19, with growth in industry and services easing to single digits. However, agriculture, where over 70% of the population is employed, was not significantly affected by the COVID-19 pandemic, and its contribution to growth slightly improved compared to previous years.
The consistently high economic growth over the last decade has resulted in positive trends in poverty reduction in both urban and rural areas. The share of the population living below the national poverty line decreased from 30% in 2011 to 24% in 2016 and human development indicators improved as well. However, gains are modest when compared to other countries that saw fast growth, and inequality has increased in recent years. Furthermore, conflicts in various parts of Ethiopia risk undermining the economic and social development progress the country has achieved.
The government has launched a 10-Year Development Plan based on its 2019 Home-Grown Economic Reform Agenda, which runs from 2020/21 to 2029/30. The plan aims to sustain the high growth achieved under the Growth and Transformation Plans of the previous decade while facilitating the shift towards a more private-sector-driven economy. It also aims to foster efficiency and introduce competition in key growth-enabling sectors (energy, logistics, and telecom), improve the business climate, and address macroeconomic imbalances.
Ethiopia seeks to chart a development path that is sustainable and inclusive in order to accelerate poverty reduction and boost shared prosperity. Significant progress in job creation, as well as improved governance, will be needed to ensure that growth is equitable across society. Achieving these objectives will require addressing key challenges including macroeconomic distortions that constrain private sector development, structural transformation and generation of jobs, reducing the incidence of conflict that has been having a substantial impact on lives, livelihoods, and infrastructure.
The cessation of hostilities in the Northern part of the country between the government and TPLF forces in November 2022 is an important step in this direction.
Like the rest of the world, Ethiopia has been experiencing the unprecedented social and economic impact of the pandemic. While exports and foreign direct investment rebounded in 2020/21 and jobs have been recovering, some lasting scars are likely to remain. Urban employment levels have not recovered fully, some households and firms continue to report income losses and poverty is estimated to be increased.
Frequent severe weather events alongside long-term impacts of climate change undermine agriculture and pastoral livelihoods as well as food security. The 2022 drought is the worst in forty years, severely affecting millions in the southern and eastern parts of the country. Overall, more than 20 million persons are facing severe food insecurity in 2023.
Ethiopia’s Human Capital Index is at a lower level 0.38 (2020) which means that a child born in Ethiopia today will be 38% as productive when s/he grows up as s/he could be if s/he enjoyed complete education and full health. This is lower than the average for the Sub-Saharan Africa region but slightly higher than the average for low-income countries. Learning poverty stands at 90% and 37% of children fewer than five years of age are stunted.
The country’s growing workforce (with roughly two million persons reaching working age per year) puts pressure on the absorption capacity of the labor market, necessitates improving current jobs, while creating sufficient new jobs.
The nation’s economy is heavily dependent on agriculture which is the major foreign currency earner, supplies inputs to agro industries and food to the market. But it utilizes unskilled labor, low agricultural inputs with low yields. The vulnerability of the sector to extreme climate condition also critically affects the efforts exerted on poverty reduction in the rural part of the country. Hence, to attain economic progress and development, modernizing the sector is essential.
To that end, expanding education in rural part through increasing budget and enhancing the utilization of inputs and providing extension services is necessary.
For the mentioned registered economic growth side by side the government efforts, the financial support and advice obtained for partners played pivotal role. However, it is undeniable fact that Ethiopia still faces macro-economic challenges which needs due attention and among others, inflation, high debt service approximately two billion annually, unemployment, foreign currency crunch, illegal trade, money laundering, deep routed corruption and capital out flow through illicit trade.
To mitigate the problems, the government has taken various measures but bringing solution is not an easy task and needs time, dedication and commitment on the parts of the pertinent institutions.
Recently, a high-level Ethiopian delegation led by the Minister of Finance, Ahmed Shide and Governor of the National Bank, Mamo Mihretu, made fruitful discussions with the World Bank Group (WB) and the International Monetary Fund (IMF) officials during the Annual Meetings held in Marrakech, Morocco, from October 9-13, 2023.
According to a press release of Ministry of Finance, the delegation met with WB President Ajay Banga, IMF Managing Director Kristalina Georgieva, WB Managing Director, for Operations Anna Bjerde, WB Eastern and Southern Africa Vice President, Victoria Kwakwa, and African Department Director, Abebe Aemroselassie.
During the occasions, the minister highlighted the country’s development priorities, including economic recovery, macro-fiscal stability, private sector development, human development, and reconstruction of the demolished infrastructure in the past two years long among others.
The press release disclosed that both institutions commended Ethiopia for the critical steps taken to stabilize the economy and tame inflation as well as the broad-based reform program planned under Ethiopia’s second phase of the Home-Grown Economic Reform.
The meetings also discussed and agreed on a way forward on how the IMF and the WB can jointly support the country’s ambitious economic program that is set to unlock Ethiopia’s full economic potential.
Meanwhile, the Ethiopian delegation held bilateral discussions with the British State Minister Andrew Mitchell, and US Treasury Undersecretary as well as US and France Executive Directors on Ethiopia’s current political and economic affairs and the ambitious plan for the next phase of transformative reforms needed to address present challenges on the sidelines of the annual meetings.
IMF team notes that important steps taken by Ethiopia enables to bring down inflation and stabilizes the economy.
International Monetary Fund (IMF) team on its part noted that the important steps that have been taken by the government of Ethiopia to bring down inflation and stabilize the economy, including significant fiscal and monetary tightening in Ethiopia.
The IMF mission led by Alvaro Piris visited Addis Ababa from September 25 to October 3, 2023, to hold discussions on IMF’s support for the reform program, a press release issued by IMF said.
This has put in place a critical foundation for success of the Homegrown Economic Reform Agenda, which aims to fulfill Ethiopia’s considerable economic potential.
The mission made good progress in discussing how the IMF could support the government economic program.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD FRIDAY 27 OCTOBER 2023
