Ethiopia Economy Expected to Move toward a more sustainable path
Ethiopia’s Real GDP growth is estimated to have picked up to 10.9 percent in 2017 fiscal year mainly due to a recovery in agricultural production after last year’s drought, based on the new economic update of Ethiopia report from the World Bank.
As it was launched in the economic update at Addis Ababa Hilton on May 16, 2018, Ethiopia’s annual rate of economic growth which averaged 10.3 percent over 2005/06- 2015/16 (compared with the regional average of 5.4 percent ) slowed to 8 percent in 2016 fiscal year due to drought related lower agricultural production. With agricultural recovery, gross domestic product (GDP) growth rebounded in 2017 fiscal year.
The crop harvest is estimated to have increased by 7.9 percent during the 2017 fiscal year agricultural season and to have generated positive spillover effects on the industrial and service sectors, which continue to account for most of the growth from the supply side.
On the demand side, growth has remained driven by government consumption and investment. The 15 percent of devaluation of the Birr in October 2017 is expected to sustain exports in the medium term and improve the external balance; providing the exchange rate correction pass through on inflation is contained and structural bottlenecks to trade are addressed.
Despite overall progresses, the export sector remains particularly small. Total goods and services exports do not exceed 10 percent of GDP, significantly below the 24 percent the 24 percent expected from a country the size of its level of development.
The report assessed this fiscal year prospects and challenges. Annual real GDP growth is projected to hover around 8 percent in 2018 fiscal year and the medium term. The government macroeconomic policies are expected to remain sound, with moderate fiscal deficits and prudent monetary policy. Although the rate of inflation should remain in the single digits, the inflation differential with competitors may widen and need to be corrected appropriately to preserve Ethiopia’s external competitiveness.
The report recommended valuable policy measures. Foreign direct investment inflows supported by incentives and ongoing development of industrial parks are expected to boost the manufacturing and the country’s export capacity. The economy needs a larger and stronger private sector which will address and to be the main response to strengthen Et hiopia’s trade competitiveness and resilience to shocks.
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