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Ethiopia's GDP growth has slowed since 2018 due to political uncertainty and weak export prices, despite previous strong growth driven by public investment and agriculture. The country faces high external debt distress and a foreign exchange shortage, prompting a shift in government strategy to enhance private sector involvement through the Homegrown Economic Reform Plan. This plan aims to address economic vulnerabilities and structural bottlenecks while implementing political reforms to foster stability and growth.

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6 views1 page

54

Ethiopia's GDP growth has slowed since 2018 due to political uncertainty and weak export prices, despite previous strong growth driven by public investment and agriculture. The country faces high external debt distress and a foreign exchange shortage, prompting a shift in government strategy to enhance private sector involvement through the Homegrown Economic Reform Plan. This plan aims to address economic vulnerabilities and structural bottlenecks while implementing political reforms to foster stability and growth.

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wayiso koche
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Qaro Import and Export Coffee Farm - Business Valuation-DraftReport

Nevertheless, Ethiopia's GDP growth has slowed down beginning from 2018. Although
in 2018 and 2019, Ethiopia has experienced a strong GDP growth (6.820 and o.oo70;
respectively), the growth rates, were the slowest in 15 years. According to IMF, the
impulse from a favourable agricultural harvest, transportation, and emerging
manutacturing exports was partly offset by political uncertainty, weak commodity export
prices, and public-sector expenditure cuts aimed at containing the fiscal and external
current account deficits.

Ethiopia's growth over the past decade has been primarily driven by public investment
and agricutural growth. This has been based upon a policy framework of external
Tinancing. keeping government consumption low,and heterodox mechanisms, including
tinancial that suppressed interest rates and directed
repression credit to public
infrastructure, an overvalued exchange rate that cheapened public capital imports, and
direct central bank financing of the
budget.

The resulting structural external imbalances and indebtedness present an increasing


risk to macroeconomic stability and threaten long-term growth. Stagnant exports and
the maturing of non-concessional borrowing contracted over the past five years resulted
in a deterioration of the 2017 Debt Sustainability Analysis (DSA) indicators, with the risk
of external debt distress now assessed as "high". In addition to the increasing debt

challenge, the country is also facing an extreme shortage of foreign exchange. Tighter
fiscal and monetary policies can reduce macroeconomic imbalances, but the
foreign
exchange position will remain fragile. Therefore, it can be concluded that the growth
model that has driven the past impressive economic growth is now under stress.

Accordingly, after more than a decade of sustained public sector-led growth, the
government revising its growth strategy to allow for a much greater role for the private
is

sector in driving growth and job creation. The recently announced Homegrown
Economic Reform Plan, consisting of a mix of macroeconomic, structural and sectoral
address vulnerabilities and tackle structural bottlenecks inhibiting
policies, to private
sector activity. The reform, which envisages the opening of key enabling sectors in

telecoms, energy, aviation, and logistics for private foreign participation, signals a new
phase for private sector development.

According to IMF Country Report No.20/29, the


measuresmacroeconomic policy

envisaged under the Plan to address external imbalances,debt vulnerabilities, and


inflation were expected to contribute to a slower growth of real GDP in 2020. Moreover,
the new government has also embarked on a program of political reforms such as

signing peace agreements with armed separatist groups, freed political prisoners,

opened the space for political dissent and made peace with neighboring Eritrea.

IPS- P.O.Box-2569 Tel. 011 661 03 61 E-mail: [email protected]: www.ips.gov.et 54


89rvice

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