ADDIS ABABA – Ethiopia’s economic growth could slow to 6 percent in 2009 as the world slowdown is likely to hit its coffee export, tourism, and transportation the country’s leading foreign exchange earners, the International Monetary Fund (IMF) said on Wednesday.
This is seen to largely contradict with the 12.8 percent economic growth maintained by the government.
Last month, Prime Minister Meles Zenawi said he saw only a 0.6 percent slide from the 12.8 percent economic growth last year owing to the world economic downturn, and said that was not to be considered significant compared to the economic achievements the country is registering “in the face of the global financial crisis.” “It is projected that the global crisis will continue to prevail for the next two or three years, on our side there is a hope that our economy will continue to grow at the same pace,” Meles told a press conference at his office.
But what did the IMF say on Wednesday?
The IMF said the country is one of the vulnerable countries to the unfolding crisis and it is expected to register only about 6% economic growth.
It said Ethiopia is in fact among the poorest the global financial crisis will weigh heavily on and it called for the international community to act “urgently” and “generously” to avoid devastating effects.
Speaking during a round table with the media and stake holders IMF Country Representative Sukhwinder Singh admitted the country was one of the fastest growing non-oil producing countries in Africa.
All the same, the country was no exception and will certainly be affected by the global downturn which is playing its ugly faces in all countries of the world-rich and poor, he said.
He said the impact on Ethiopia will be as bad as a six percent slash from what it managed to register last year.
The decline in export demand of coffee and its decreased price by 19%, the depreciation of effective foreign exchange rates by 30% last year, less tourism and revenue from airway transport are cited as the major factors behind the country’s poor economic performance this year.
85% of exports are going to industrial and emerging market countries who are already suffering major import declines.
He, however, indicated that the country could grasp positive advantage with the lower oil and fertilizer price at the global market.
He noted that in the middle of the year, USD 220 million Ethiopia incurred for importing oil has now gone down to USD 75 million.
He highlighted that, due to the shock induced by global crisis, economic growth projection in pre-crisis and at present is greatly varies.
The IMF forecast the growth in SSA to be 5% a little bit earlier but it now expects only 3%, Sukhwinder said.
Current account balance in Ethiopia as elsewhere in SSA is worsening and it is currently -5.4% (while it is -2.6% in SSA) with low reserve level but risks are mounting, he said.
“We need 25 billion dollar concessional financing for Ethiopia and SSA as a whole who are most affected countries” he said.
He further indicated that Ethiopia has the highest inflation rate in Africa outside Zimbabwe (26%) and much weaker in fiscal reservation. The average in SSA is 2%.
Demand for African commodities has declined as the global economy has slowed, reducing export revenues and straining African balance of payments.
“They can weather a certain amount of the storm,” Mark Plant, deputy director for African development at the IMF, told Reuters in an interview late on Friday.
“They should use reserves to continue spending in key areas to make sure the demand in the economy from the government is a bit higher and it essentially props up the economy during the short term fluctuation,” he said.
The IMF has projected growth in sub-Saharan Africa will slow to 3.3 percent this year, half of the 6.3 percent it forecast in October.
The decline in growth in the region’s oil-producing countries is expected to be sharper at 3.2 percent as oil prices have fallen sharply from highs around $147 a barrel.
Plant said promising agricultural harvests had prevented the IMF from lowering 2009 projections further still.
He said if governments thought the drop in prices of a particular commodity they produced was temporary, they should dip into their reserves and continue spending in areas propping up their economies.
If they thought the fall in prices was permanent, they should diversify production into other areas.
“It is difficult to know if this is permanent or temporary, so many governments are hedging their bets and doing a bit of both,” Plant said.
As well as increasing budget support to cushion reserves in troubled economies, the IMF recently established an emergency fund which Ethiopia and Senegal have already adopted. Democratic Republic of Congo is poised to request help too.
The “exogenous shocks facility” allows countries to access money on a short term basis without entering a formal IMF programme, Plant said.
Plummeting petroleum prices have helped the majority of African countries that are oil importers, but are hitting exporters like Nigeria.
Plant said plentiful agricultural harvests across the continent would eventually push food prices down.
“If the food price comes down it can be a mixed blessing depending on whether you are a food importer or a food exporter,” he said.
Plant added that integrating economies like in the East African Community would enlarge markets, boost trade and increase specialisation but warned economic shocks would affect each country differently.
“It will require close cooperation between the countries involved to make sure that when one country is hit particularly hard, the other countries help it,” he said. (Editing by Mike Peacock)
