IMF: Ethiopian economy needs revamp to avert slowdown

6 Nov

Editor’s Note:

    In these past two years in particular, the IMF has been behaving towards Ethiopia very politely. It has been prefacing all its observations in the framework of Article IV on the country’s macroeconomic situation with praises of the policy or otherwise actions taken by Ethiopian officials.

    For instance, the opening sentence of IMF’s press release of Oct 17, 2003 (No. 13/407) states, “Recent macroeconomic developments are encouraging, with a significant deceleration in inflation and continued robust economic growth.”

    The tick marks corresponding to the tapering inflation, easing of the negative interest rate, improvements in exchange rate availability and the fiscal condition which is rated as prudent are evidences of the Fund’s satisfaction with what has taken place in the country since the last surveillance activities it has undertaken in Ethiopia.

    At the same time, however, the IMF has consistently been coming back after two weeks or three – usually after issuance of executive board decision and release of the staff report – with some critical comments here and there. I must admit, I could not put my head around this strategy, or the IMF’s prioritization of issues and agendas with Ethiopia, even if it were the same approach with the remaining its 187 member states.

    I should possibly ask, whether the initial praise is sort of an incentive in the case of Ethiopia – to a recalcitrant customer – or simply indication of the level of diminished importance the Fund attaches to those issues that come at a later date that it is doing because that is the ideological aspect, as some allude.

    In terms of importance, in Ethiopia – by now it must be clear to the Fund – the state and its agencies come first. Then there are political party businesses (primarily TPLF’s EFFORT). Tied in the third place are those in power such as top military officers, dabbling between their profession and businesses, and major foreign investors. I have never heard the IMF pronouncing itself on this, save nauseatingly repeating itself about the important role of the private sector.

    Another issue raised by the IMF is data quality. The Fund has been providing Ethiopia for a long time with technical assistance. However, widespread concern exists about exaggerated growth figures and misrepresentation of some numbers. I agree with the IMF that this is not healthy for the country or all those dealing with the Ethiopian economy.

    At the beginning of this year, the IMF took strong measures against Argentina for persistently falsifying growth data.

    If the Fund were serious about these things, it should also act in Ethiopia, assuming that it has evidence about it. Otherwise, cliche in every press release at the end of the consultations makes no sense. That empty sentence reads: “Directors acknowledged recent improvements in GDP statistics. They encouraged the authorities to make further efforts to improve data quality, particularly financial sector, fiscal and balance-of-payments statistics, with support from the International Monetary Fund technical assistance.”

    If it is only for forms sake just give it up!

 
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Source: Reuters
Posted by The Ethiopia Observatory

Ethiopia’s economy has reached a crossroads and, to prevent growth rates from falling, needs to be restructured to encourage more private sector investments, the International Monetary Fund said on Wednesday.

Economic output should grow 7.5 percent in each of the next two fiscal years, to July 2014 and 2015, down slightly from the 8.5 percent in 2011/12, Jan Mikkelson, the IMF’s representative in Ethiopia, told reporters.

It expects year-on-year inflation – which dipped to 6.9 percent in September from 7.0 percent in August – to remain in single digits.

The government has reported double-digit GDP growth for much of the past decade, but some economists say those figures are inflated.

It said in July it expected the economy to maintain a growth rate of 11 percent in 2013/14.

Growth has been propelled by huge public spending on infrastructure, while an expansion in services and agriculture has also boosted the economy. Ethiopia’s exports include coffee, horticultural products and livestock.

“However, without policy adjustments to address the large consolidated public sector, fiscal deficit and structural bottlenecks, economic growth is projected to taper off in subsequent years,” Mikkelson said.

The World Bank says infrastructure spending required financing equivalent to 19 percent of Ethiopia’s GDP in fiscal 2011-2012.

Mikkelson said Ethiopia, which is also a big aid recipient, needed to allow more private sector involvement in driving further growth of the economy.

“While Ethiopia’s public sector-led development strategy has led to results, it is now at the crossroads. There is a need to carefully consider the balance between public and private sectors in the economy,” he said.

“Economic policy … should address this by gradually reducing and streamlining the role of the public sector in the economy and developing a strong and vibrant private sector.”

In May, Mikkelsen had forecast economic growth would slow to an estimated 6.5 percent this fiscal year.

He said the new figures given on Wednesday were due to a change in the methodology used to calculate them.
 

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