Ethiopia ben­e­fits from re­forms

The East African - - NEWS - By NJIRAINI MUCHIRA

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.

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