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Ethiopia to register robust growth
February 14, 2018, 4:06 pm

The World Bank’s latest Global Economic Prospects (GEP) report released recently shows that growth in the sub-Saharan region is now expected to have rebounded from the low of 1.3 percent in 2016 to 2.4 percent in 2017, and is projected to accelerate to 3.2 percent in 2018.

"However, despite the pickup, growth will remain below the rates seen prior to the global financial crisis, partly reflecting the struggle faced by the region's larger economies to boost private investment," the report said.

In the East African region, the economy is expected to expand at a solid pace, helped by robust investment growth. Ethiopia is expected to have the highest growth of 8.2 percent followed by Tanzania at 6.8 percent; Rwanda at 5.9 percent, Kenya at 5.5 percent and Uganda at 5.1 percent as inflation eases.

"Among East African countries, Ethiopia is likely to remain the fastest growing economy, but growth is expected to soften as it takes measures to stabilize government debt. Growth is expected to recover in Kenya, as inflation eases, and to firm up in Tanzania on strengthening investment growth," the World Bank said.

However, the Bretton Woods institution warned that excessive external borrowing without forward-looking budget management could worsen debt dynamics and hurt growth in many countries. Reforms to contain fiscal deficits and rebuild buffers are particularly needed in in the non-resource-intensive countries in East Africa where government debt is high and rising," the World Bank pointed out in its report.

With the increase in sovereign bond issuance in recent years, a sharp increase in global interest rates could also complicate debt dynamics in the region. In the long run, World Bank says, a sharper-than-expected slowdown in growth could damage prospects for gains in per capita incomes and poverty reduction.

Other downside risks facing the regional economies include heightened political and policy uncertainties, which could further hurt confidence and deter investment in some countries.

Meanwhile, the International Monetary Fund’s Board, which met in mid-January for country consultations on Ethiopia, praised authorities in the country for the expansion of the economy by nine percent last year and a prudent fiscal policy that kept budget deficit lower than had been expected.

However, the IMF warned that the economy could confront threats of similar ‘external imbalance’ (foreign debt) that brought the nation’s foreign exchange reserves down to 3.2 billion dollars in 2016/17, enough only to cover 1.8-month worth of imports. It also reckoned that the economy, believed to be at a crossroads, is not out of the woods when it comes to inflation and thus urged Ethiopia to tighten its monetary policies, check imports diversify exports and introduce a flexible exchange rate policy.

The IMF Board also recommended that policy makers push for policy reforms aimed at containing public sector borrowing while broadening the space for private sector competitiveness, including further privatization of the nation's valuable assets.

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