Dec 15, 2012
Ethiopia’s battle against runaway inflation – The World Bank has praised Ethiopia for initiating reforms to reduce the runway inflation and reduce public debt to manageable levels, in a new report indicating ambitious goals to cut poverty are within reach.
Ethiopia’s economy has been growing at twice the rate of the Africa region over the past decade, averaging 10.6% of the Gross Domestic Product (GDP) yearly between 2004 and 2011, compared to 5.2 percent in sub-Saharan Africa, according to the report released Friday.
“Ethiopia has made progress in tackling the persistently high inflation which affected the economy over the past two years by tightening its fiscal and monetary stance,” it noted.
Annual inflation dropped from 33% in 2011 to 15.8% in October 2012, while public debt is on a declining trend at 35% of GDP in 2011/12. Ethiopia has a low risk of external debt distress.
“This is good news for the poor and for the overall economy,” World Bank Country Director for Ethiopia Guang Zhe Chen said.
“The Government target to reduce poverty to 22.2% by 2014/15 is ambitious but attainable,” the World Bank official said.
Some 2.5 million people in Ethiopia have been lifted out of poverty over the past five years as a result of strong economic growth, bringing the poverty rate down from 38.7% to 29.6% from 2004/05 to 2010/11.
Ethiopia’s fiscal performance appears to be adequate, given the current state of the economy and financing requirements for development, according to the Bank report.
Growth of goods exports has mainly been driven by volume of growth across a variety of product groups, implying that Ethiopia is increasingly diversifying its export base.
Although aid to the state including grants declined from 1.6% of GDP in 2010/11 to 1.2% of GDP in 2011/12, tax collections have been boosted by the 2010 tax reform, while reforms in the budgeting process have strengthened public expenditures.
“Ethiopia is one of the few large, land-locked economies in the world that exports more services than goods,” said Lars Christian Moller, Bank’s Lead Economist and Sector Leader for Ethiopia.
The Bank attributes Ethiopia’s economic growth mainly to agricultural modernisation, the development of new export sectors, strong global commodity demand, and government-led development investments.
“There is widespread perception that the comparative advantage of a low-income country like Ethiopia lies in export of primary products and labor intensive, low-skill manufacturing goods,” Moller said.