New indicative report reveals Ethiopia’s economic high-lows, prospects

By our staff reporter

A newly released report which showcases the country’s current challenges and future economic prospects reveals that Ethiopia’s real GDP growth was expected to slow down from 6.4 percent in 2022 to 5.8 percent in 2023. As the study depicts, the growth decline was attributed to mounting fiscal and external pressures that had intensified in recent times.

The study highlighted that the agricultural and services sectors continued to contribute to economic activity and growth, while other sectors such as manufacturing and construction were being impacted by acute foreign exchange shortages, the suspension of the country’s African Growth and Opportunity Act beneficiary status, and ongoing conflict in the northern part of the country.

According to the analysis, despite these challenges, the agriculture sector showcased a strong performance, particularly in poultry and fruit production, which bolstered economic activity. However, Ethiopia’s political environment remained difficult, with active insurgencies in the Amhara and Oromia regions and a delicate peace agreement with the regional administration in Tigray.

“High inflation and a shortage of foreign exchange further added to the short-term concerns regarding economic activity,” the report read.

“Exports in Ethiopia remained relatively stable, although the dynamics differed between goods and services exports. Goods exports experienced a 12 percent year-on-year decline in the first 11 months of fiscal year 2023, primarily due to burdensome business costs and export surrender requirements. Conversely, services exports increased by four percent, driven by the recovery of Ethiopian Airlines from the pandemic,” the study further underlined.

As the outlook gathered, unfortunately, armed conflict, droughts, and soaring food prices had resulted in the reversal of poverty reduction gains in Ethiopia, causing significant challenges for the population.

The report also highlighted issues related to Ethiopia’s currency, the birr, which had been overvalued for an extended period. As indicated, the parallel premium for the birr had widened by nearly 90 percent by July 2023.

“To manage foreign reserves, the National Bank of Ethiopia implemented import and exchange rate restrictions, leading to remittance transactions being conducted in the black market. The Ministry of Finance imposed further restrictions, including the closure of credit lines for nonessential imports, resulting in transactions shifting to the parallel market. As a consequence, the gap between the parallel and official exchange rates continued to widen, foreign exchange reserves dwindled, and inflationary pressures intensified,” the report revealed how the issue was combated.

As is known, in February 2021, Ethiopia sought treatment under the Common Framework, and an Official Creditor Committee was formed in September of the same year. However, the process faced delays due to political and security concerns, only recently resuming.

Looking ahead, the report projected that real GDP growth in Ethiopia would accelerate from 5.8 percent in 2023 to 6.4 percent in 2024 and seven percent in 2025. The recovery would be driven by robust growth in gross fixed capital investment and a strong rebound in government consumption, particularly following the peace agreement with the regional administration in Tigray.

“From a production standpoint, services and industrial activities were expected to contribute to growth acceleration,” it cited.

The report indicated that Ethiopia would face challenges in regaining its pre-pandemic performance due to the prolonged conflict in the northern region, which deterred investment. Nevertheless, the forecast projected steady growth, with real GDP expected to increase from 5.3 percent in 2023 to 6.1 percent in 2024, and further to 6.6 percent and 7.0 percent in 2024 and 2025, respectively, according to previous World Bank forecasts.

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