After passing through one of the very serious droughts induced due to El Nino, many were suspicious about the economic situation of Ethiopia. But due to the resilient economy built over the last 20 and so years the nation has managed to withstand the difficult economic situation. Recently, the World Bank Group has released the economic performance of the nation for the year 2015/2016.
It was expected that Ethiopia’s strong economic growth would slow down in 2015/16 due to the drought that was caused by climate change phenomenon which has affected the economy negatively through reductions in food production.
While there was some uncertainties about the actual impact of the drought, preliminary actual figures from the government for 2015/16 show that the growth rate was eight percent, in line with this, the growth impact is lower than originally envisaged. A decade of remarkable double digit growth rates helped the economy to cope well with the recent challenges encountered in 2015/16.
In fact, the ability to keep growth positive is a remarkable achievement for the government. According to the report, the country has experienced negative GDP growth in 1997/98 and 2002/03. In 1998 growth dropped to -3.5 percent from 3 percent in the previous year. Similarly, in 2003 it dropped to -2.2 percent from 1.5 percent previous year. Medium-term economic growth can be unaffected from the drought since the rains set in normally again in 2016/17.
In addition, the completion of the Addis Ababa -Djibouti railway line, significantly eases trade logistics related constraints. The commencement of new industrial parks (Hawassa and Bole-Lemi Phase II) and the increasing capacity in power generation with the completion of transmission lines to neighboring countries (Sudan and Kenya) are also expected to improve the export performance. This progress in the country are also expected to stimulate growth in the short- to medium-term. Economic growth is still expected to drive further reductions in poverty.
The report further noted even if there are poor rains and the associated lower agricultural production, the overall economic growth effect was modest. And growth has been an important driver of poverty reduction in the last decade with each percent of growth reducing poverty by 0.55 percent.
Based on this, the proportion of households living below the poverty line of US$1.9 purchasing power parity (PPP) is estimated to decline from its estimated level of 27.2 percent in 2015 to 24.6 percent in 2018. Yet, poverty may fall less than predicted. This is due to the fact that the areas most badly affected by the drought are the poorest parts of the country.
According to the report, the Ethiopian economy has shown remarkable achievement even if it shows a slight decline in the year 2015/16 by withstanding various external and internal challenges.
According to the Ministry of Finance and Economic Cooperation, Ethiopia’s economy has been challenged by El Nino induced drought and external export market challenges in the last Ethiopian budget year but achieved somehow good performance after that.
The report also witnessed that Ethiopia has been one of the fastest growing economies in the world with growing average of close to 11 percent over the past decade. And the last one and so years the recent worst drought that the country faced has been somehow a challenge to the nation which was different from similar situations in the past fifty years.
According to Carolyn Turk, World Bank Country Director to Ethiopia, Sudan and South Sudan, Ethiopian’s economic growth remained at a respectable eight percent in 2015/16, which is impressive especially compared to previous drought situation which was predicted by many to have an economic contraction.
In the 5th Ethiopia Economic Update presented by the World Bank Groups’ recently the growth momentum will still remain, medium-term economic growth can be unaffected from the drought since the rains set in normally again in 2016/17.
Michael Tobias Geiger, Senior Economist at the World Bank, said that the macro economic depth report have highlighted the economic achievement challenges and opportunities of the nation. He said, “Ethiopia has also managed to keep inflation under control.”
The report reveals that the performance of the export sector and the current account balance however has been weak. It is also stated in the report that the chronic current account deficit including official transfers remained high in 2015/16 at 10.4 percent of the GDP due to the large imbalance in import and export of goods and services. The report also identifies that low commodity prices and appreciating real exchange rate led to a decline in exports of goods and services by 4.1 in 2015/16.
It was also stated that urban areas are identified as key players in advancing structural change in Ethiopia, as centers of innovation and industrial development. The report further noted that well-functioning and efficient urban labor markets are key ingredients to ensure transformation and to benefit each segments of the population.
Finance and Economic Cooperation Minister, Dr. Abraham Tekeste, said that the drought that Ethiopia has faced last year has shown the capacity of the nation in terms of its resilience to withstand the El Nino induced drought.
The investment that the nation has put over the last 25 years has built resilience as it has effectively absorbed the shocks. He said, “The response of the government is very swift and effective in the humanitarian works to reverse the situation. And the nation’s export in terms of volume has increased in the stated time.”
The minister added the economic development registered last year through overcoming the challenges reminded us the need for diversifying the economy and building resilience of the economy.
Dr. Abraham further highlighted the focus areas of Ethiopia’s second Growth and Transformation Plan (GTP-II) which has given ample focus to creating jobs to maintaining the momentum of rapid growth, structural transformation and promoting industrialization. And the export oriented, private sector development and deepening democratization are the major focuses of the plan.
The Ministry of Finance and Economic Cooperation and the World Bank are hopeful and ambitious that the completion of the Addis Ababa- Djibouti railway line will significantly ease trade logistics related constraints. Moreover, they added the commencement of new industrial parks and the increasing capacity in power generation with the completion of transmission lines to neighboring countries as best opportunities to improve the export performance and stimulate growth in the short and medium term.
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