Ethiopia benefits from reforms
ETHIOPIA IS REAPING the benefits of widespread political and socio-economic reforms with the economy expected to maintain a robust growth.
The International Monetary Fund (IMF), which concluded consultations with Ethiopia, says the conducive political climate that has been created by Prime Minister Abiy Ahmed is catapulting the country’s growth significantly.
After a relative lull last year when Ethiopia recorded a 7.7 per cent gross domestic product (GDP) growth, this year GDP growth is projected to accelerate to 8.5 per cent supported by stronger confidence as the political uncertainty of previous years recedes.
The stability on the political front has resulted in exponential rise in external financial inflows, increase in foreign direct investments (FDI), easing of external financing constraints and foreign exchange shortages.
“As the political climate settles and investment recovers, growth is expected to recover to 8.5 per cent this fiscal year and the current account deficit should continue to narrow,” said the IMF.
It added that despite the positive developments, a ballooning public debt burden and large external imbalances are major constrains to future growth.
In particular, the IMF observed that Ethiopia is facing a huge burden of servicing the massive public debt considering that payments are expected to increase in the coming years as grace periods on non-concessional loans expire. The country’s public debt has increased from 57.2 per cent of GDP in the 2016/17 financial year to 60 per cent in the 2017/18 financial year, totalling $26 billion.
“While debt is sustainable in the medium term, Ethiopia remains at high risk of debt distress,” noted the IMF.
To mitigate the debt risks, the country needs to reduce public sector borrowing, particularly on non-concessional loans, and raise tax revenues and exports to reduce vulnerabilities.