- Ethiopia has recorded "impressive growth" during the past few years, according to a new IMF review, "the fastest for a non-oil exporting country in sub-Saharan Africa." This year, real GDP is expected to grow by an impressive 8.4 percent, slowing down to a strong 7.1 percent in 2009.
A mission by the International Monetary Fund (IMF), led by Robert Corker, visited Ethiopia during the last fortnight to conduct discussions with authorities for the 2008 Article IV consultation. The IMF mission was impressed by the durable growth, which now is the highest in Africa, with exception of oil producing countries.
According to the IMF, growth in Ethiopia had been "supported by structural reforms and infrastructure development, as well as favourable agricultural conditions, with the rapid growth contributing to poverty reduction" and progress toward the Millennium Development Goals (MDGs).
However, the strong growth is now threatening to push inflation rates out of control. In March this year, the 12-month increase of overall inflation was 30 percent, with food price rises of 40 percent (year on year) having a particularly strong negative impact on the urban poor. Reserves were below two months of imports.
The IMF thus recommended Ethiopia to tighten its fiscal policy in the financial year 2008/09 if the country wants to achieve a single digit in the inflation. The IMF's 12-day mission to Ethiopia, which ended on Sunday, also emphasised the need for the country to strike a balance between demand-dampening and growth-enhancing measures to achieve macroeconomic stability.
The mission said if Ethiopia could stabilise the inflation to a comfortable level, the country would regain the foreign reserves which were already below two months of imports.
The IMF also recommended to authorities to seek additional external financing on a grant or concessional borrowing to safeguard on the severe effects of high world oil prices as well as the rising commodities market. "Such financing, for example, could facilitate needed investments in the power sector without crowding out private domestic borrowing," the IMF mission said in a statement.
On the medium term basis, the mission expressed support for the Ethiopian government's overall strategy to strengthen the foundations for growth with an increasing role for the private sector, while preserving macroeconomic stability.
"Key aspects include scaling up public sector investment in infrastructure, health and education, while maintaining a sustainable debt position, and boosting overall economic activity through commercialisation of agriculture and fostering the non-farm private sector," the IMF mission concluded.
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