Ethiopia Economic Outlook
- In 2012/13, Ethiopia’s economy grew by 9.7%, which made Ethiopia one of Africa’s top performing economies.
- Through co-ordinated, prudent fiscal and monetary policies, the Government of Ethiopia (GoE) has brought down inflation to single digits.
- Trade and industrial policies are not yet attuned to global value chains; such policies should address all obstacles and opportunities linked to each level of the global market.
In the 2012/13 fiscal year,1 Ethiopia’s economy grew by 9.7%, the tenth year in a row of robust growth. In 2012, Ethiopia was the twelfth fastest growing economy in the world.2 Average annual real GDP growth rate for the last decade was 10.9%. Agriculture, which accounts for 42.7% of GDP, grew by 7.1%, while industry, accounting for 12.3% of GDP, rose by 18.5% and services, with 45% of GDP, increased by 9.9% in 2012/13. This momentum is expected to continue in 2013/14 and 2014/15, albeit at a slower pace because of constraints on private-sector growth.
In an effort to combat inflation, the government pursued a tight monetary policy stance using base money as the nominal anchor to control monetary expansion. This measure, in the context of a slowdown in global commodity prices, resulted in annual consumer price inflation of 7.9% in November 2013, compared to 39.2% and 15.6% in November 2011 and 2012, respectively. The government’s determination to reduce inflation was further reflected in the pursuance of prudent fiscal policy focused on strengthening domestic resource mobilisation and reducing domestic borrowing. The strong fiscal stance, particularly measures to improve tax administration and enforcement, contained the fiscal deficit at 2.0% of GDP in 2012/13 compared to 1.2% of GDP in 2011/12.
Between 2011/12, merchandise exports totalled USD 3.1 billion, posting a 2.3% decline from the previous fiscal year and decreasing from 7.4% to an estimated 6.5% as a share of GDP. The value of imports, mainly from Europe and Asia, increased from about USD 11.1 billion in 2011 to USD 11.5 billion in 2012/13. With imports rising faster than exports, the trade deficit deteriorated to USD 8.4 billion in 2012/13, from USD 7.9 billion in the previous year. However, the overall balance of payments deficit in 2012/13 decreased significantly, down by 88% compared to the previous year, mainly due to a good performance in other accounts (surplus in the non-factor services trade, huge private transfers and the surplus in the capital account).
Though the stock of external debt as a ratio of GDP increased from 21.6% in 2011/12 to 24.3% at the close of 2012/13, the country remains at low risk of external debt distress. Rebuilding gross official foreign reserves has, however, resurfaced as a challenge because foreign exchange reserves fell to less than two months’ of import coverage.