Why advancing Ethiopia’s economic reform agenda is important for the country ...

May 14, 2021

 

Ethiopia has achieved major improvements in economic, social, and human development over the last decade. However, this success has occurred in a context of the slow development of a vibrant private sector and a macroeconomic imbalance. With the outbreak of the pandemic, Ethiopia’s progress was further threatened by an uncertain post-COVID-19 economic environment, both international and domestic. The situation required Ethiopia to examine its growth model and continue a series of reforms to set the country on a sustainable economic development path.

The previous development model Ethiopia pursued, because of over-ambitious public investment that was coupled with poor project execution and low export performance, had its shortcomings. In light of this recognition, the government launched an ambitious Homegrown Economic Reform Agenda consisting of sectoral and structural reforms aimed at removing business constraints, opening sectors to foreign participation and competition, and enhancing transparency, accountability and viability of state-owned enterprises (SOEs). The government also placed emphasis on undertaking paradigm-shifting macroeconomic measures to remove distortions and shift the burden of large-scale infrastructure financing away from the government. Working in partnership with development partners, Ethiopia has committed to build on the positive progress registered under the reform agenda so far and continues on a more sustainable development path.

The global COVID-19 pandemic and its effects have had a disproportionate economic impact on developing countries such as Ethiopia.  To minimize the severity of the disruptions, Ethiopia acted swiftly to contain the transmission of COVID-19 and mitigate the impacts of the pandemic on the public and the economy. Additionally, the country adopted economic measures such as allocating additional expenditure on healthcare, provision of emergency food support to the vulnerable, tax and social security payment deferrals, and liquidity injections and extension of forbearance measures in the financial sector. All of these measures contributed significantly to the minimization of the financial and social impact of the virus on the people of Ethiopia and enabling the country to continue on its path of economic development.

The pandemic has also shed light on the importance of the continued implementation of Ethiopia’s economic program. During these unprecedented times, Ethiopia found it critical to remain vigilant and focused on creating an enabling environment for private sector growth, targeted export promotion, improving governance and productivity, and enhancing social protection programs -- all of which are part of the government’s sectoral, structural and macroeconomic reforms.

Additionally, the deep and lasting structural reforms we are undertaking will be fundamental for creating much-needed jobs for the large number of Ethiopia’s youth. Economic inequality and frustration of the youth was one of the main drivers for the 2018 change in government which brought new administration into power. Addressing this huge demand for employment remains a key driver of stability both within the country as well as the region.

Evaluation of the first phase of performance of the implementation of the economic reform program, particularly in putting in place sound policies regulatory frameworks and shows encouraging results. Managing the economic reforms will help create the building blocks to deliver meaningful change and a sound foundation for longer-term development. Our economic reform program has had several significant outcomes:

While we feel we have accomplishments to celebrate, we will not be resting on our laurels. Looking ahead, we will continue to build on these achievements while focusing on deepening the implementation of the systemic reforms that we have initiated. The government recognizes that having the right policies in place is only a first step; an informed civil service must be empowered to implement and realize the spirit of new regulations. Our priority will be to mitigate the anticipated impact of COVID-19 and other challenges on Ethiopia’s economy, as we continue to work hard at sustaining accelerated growth and creating ample opportunities for private sector participation in Ethiopia as the engine of job creation.

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