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“Ethiopia’s economy is strong and has prospect positive”
Christine Lagarde (IMF’s Managing Director)
Amen Teferi
Ethiopia’s incredible economic rise has enjoyed the lavish praise of many observers from around the world. The warm approval and admiration for Ethiopia’s extraordinary economic performance is becoming an ordinary thing that no more has the power to ignite the tendency to be satisfied with our achievements as it did in the past. However, for what it’s worth, compliments coming from the staff member of the International Monetary Fund (IMF), let alone the Managing Director of the Fund, will always be uplifted.
The Managing Director of the IMF, Christine Lagarde, has recently praised Ethiopia’s economic performance of the past few years as “strong” and having “positive Prospects.” For good measure, she would like Ethiopia to exercise restraints in “public spending” while urging authorities to control borrowing from overseas to finance public projects and strengthen export competitiveness.
Christine Lagarde is the first most senior official of the Fund to visit Ethiopia since its founding after the Second World War. Currently IMF has 189 member countries and Ethiopia had joined the Fund in December 27, 1945. The IMF was established to help the member countries to achieve and maintain macroeconomic stability and that remains to be one of the core functions of the Fund.
While she is in Addis she has talked to Ethiopian authorities, including Dr. Mulatu Teshome President of the Federal Democratic Republic of and Ethiopia’s Prime Minister Hailemariam Desalegn, on issues of macroeconomic stability and monetary policy matters.
In an interview with (Addis) Fortune, Christine Lagarde said, “The national authorities need to strike the right balance between addressing formidable development needs and maintaining debt sustainability. For many countries, this will mean strengthening efforts to improve public investment selection processes, implementation, and efficiency. Furthermore, governments should give priority to investments in human capital, especially investments in programs aimed at boosting healthcare and education.”
Her visit will give her a chance to have a personal experience of Ethiopia’s economic growth and we have learnt from news reports that her trip to Addis was an opportune time to have “a better understanding of the economic development model which has been implemented in Ethiopia.” Lagarde told to (Addis) Fortune that “Ethiopia has enjoyed sustained high growth coupled with improvements in living standards over 15 years. The medium-term prospects are also strong: past investments in trade-enhancing infrastructure are starting to pay off. The challenge now is to manage a transition from public sector-led growth to a situation where the private sector takes the lead, something rightly emphasized in the government’s Second Growth and Transformation Plan (GTP II).”
According to the Managing Director, transitioning to private sector-led growth, as envisaged in the GTP II is important to create jobs, finance critical public services and reduce poverty. In parallel, the country’s current emphasis on exports addresses a key issue and help Ethiopia to reduce the deficit of the external current account and alleviate the burden on the public sector to provide infrastructure services. In this regard, a more extensive use of public-private partnerships, private concessions, and privatization proceeds—as envisaged by the authorities—will safeguard public resources while helping private sector development.
The government’s restraint on public imports, particularly by public enterprises, helps reduce the external deficit; mobilizing domestic revenue and reduces the need to borrow abroad; and improving the business climate attracts domestic and foreign private investment, and raises competitiveness and exports.
It is to be recalled that the International Monetary Fund (IMF) staff team led by Mr. Julio Escolano had visited Addis Ababa from September 13 to 26, 2017 to conduct the 2017 Article IV consultation discussions with Ethiopia. At the conclusion of the visit, Mr. Escolano made the following encouraging statement.
The staff team had then declared that the real gross domestic product is estimated to have increased by 9 percent in 2016/17. Praised the government’s prudent budget execution that led to a lower-than-planned fiscal deficit, estimated at 2.5 percent of GDP and to complement the restrictive fiscal stance it advised the monetary policy to be tightened.
The staff team report had acknowledged that “The Ethiopian economy showed strong resilience in 2016/17 amid continued weak global prices for Ethiopia’s key exports and re-emergence of drought conditions in parts of the country.”
It had also applauded the government interventions to mitigate the social impact of the drought, in collaboration with development partners, as they were timely and effective and thus limiting its human cost. “Determined actions by the authorities to contain external imbalances led to a narrowing of the current account deficit, and restrained debt accumulation. Nevertheless, exports continued to stagnate due to weak global commodity markets and delays in completion of key related projects,” the report said.
As the social needs remain large, the staff team supports Ethiopia’s intention to protect pro-poor spending programs. However, it has urged the government to strengthen the ongoing efforts of domestic revenue collection and the governance of public enterprises needs to be stepped-up to mobilize domestic resources and encourage their effective use. The bottom-line is Ethiopia’s economy is booming. Despite the country’s current political turmoil, the IMF thinks the good time will last.
And do not forget that in 2000 Ethiopia was the second-most populous country in Africa and was third-poorest country in the world. In 2000 Ethiopia had one of the highest poverty rates in the world, with 56 percent of the population living on less than US$1.25 PPP a day. Ethiopian households experienced a decade of remarkable progress in wellbeing since then and by the start of this decade less than 30 percent of the population was counted as poor. Then, its annual GDR per capita was only 650 USD and more than 50% of the population lived below the global poverty line.
What has happened since is miraculous. According to IMF estimates, from 2000 to 2016, Ethiopia was the third-fastest growing country in the world, as measured by GDP per capita. Ethiopia’s economy is dubbed as one of the “fastest growing economies of the millennium.” The outlook for the next five years is bright. In its latest global forecast the IMF projected that Ethiopian GDP per capita would expand at an annual pace of 6.2% through 2022 – among countries with more than million or more people, only India and Myanmar are expected to grow faster. Ethiopia’s economy has been growing rapidly since 2003. The IMF has projected that Ethiopia’s GDP per capita will go up to 2500 USD in 2022.
Any country, making such progress would be cause for celebration, but because of its size, swelling population, and the depth of its poverty, Ethiopia’s gains are particularly heartening. By 2050, the UN expects the country to grow to 190 million people, from around 100 million today, making it among the fastest-growing large countries in terms of population, too.
A recent study by Center for Development, a US think tank, concluded that Ethiopia was the most likely country in Africa to become the “New China.” However, Ethiopia faces a variety of challenges. Though the government has overseen a growing economy, it also has been facing daunting difficulties of political turmoil. Some observers have indicated that if the country is able to overcome its political instability, the economic opportunities are immense. An increasingly educated population, improving infrastructure, and foreign direct investment (particularly investment from China) will give Ethiopia the chance to maintain its place among the world’s brightest development stories.
The think tank has also affirmed that Ethiopia is already leading the way as Africa’s 21st century center for manufacturing has the best likelihood of being the “New China” as the labor cost is giving Ethiopia a competitive advantage over other African and Asian countries. Fashion brands like H&M, Guess, and J. Crew are already finding potential in Ethiopia.
