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Published On  Oct 16,  2011
   
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Staffs of Dev’t Agencies say Less is Better for GTP

 

 

Just after a year it was submitted to development agencies, the Joint Staffs have released a full analysis of the government’s five-year economic plan questioning the ability of the government to secure funds for its ambitious plan and criticizing its lack of prioritization.

Released on Wednesday, October 12, 2011, the resounding concern of review, prepared by Staffs of the International Development Association (IDA) and IMF, was government fiscal and monetary policies.

Only few countries have achieved the average annual growth of 11.2pc in the base case scenario, which is above the Staff’s estimate, between six and eight per cent, let alone the high case scenario of 14.9pc, the review said.

The main concerns stem from heavy financing needs that have not been secured and the limited role envisaged for the private sector. According to the review, rising inflation, which was 40pc in August, and the negative real interest rate also represents a heavy tax burden on the poor and is eroding the gains made under the donor-funded social protection and social safety net programs.

Keeping inflation in single digits, which the government says is crucial to achieve the GTP, was called into question. Bringing it down from where it is now will not be easily achieved due to the Central Bank’s monetary policy, which is unsuitable to tackle rising prices, the review said.

“The lack of a nominal money anchor, due to the heavy use of base money for fiscal purposes, together with nominal interest rates that are kept well below inflation, is contributing to a misallocation of resources and use of inflation,” the 14 page review said.

The development plan envisions Ethiopia increasing crop production, boosting infrastructure and improving electricity generation to meet its growth goals. However, a process of collaboration and problem-solving with the private sector, and not just a collection of priorities and incentives, can bring about the desired result, Staffs recommended.

Although, Ethiopia’s endeavours to improve service delivery, building on the socio-economic progress, and broad-based growth in the past few years are encouraging, Staffs found that the government was highly ambitious in investment and growth objectives. Less could be more in the current overheating environment where much of the financing is not yet secured, the Joint Staff advised and urged the authorities to consider a slower pace of public investment and a rebalancing in favour of the private sector.

By Hailu Teklehaimanot
Fortune Staff Writer

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