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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. |
