Ethiopia Increases Spending as IMF Calls for More Private Loans

July 6, 2013

Ethiopian lawmakers approved a 12 percent spending increase in 2013-14 to help support infrastructure development as the International Monetary Fund urged the government to free up credit for private borrowers.

The state will boost spending to 159.4 billion birr ($8.5 billion) in the year from July 8 with about one-third allocated to upgrading roads, State Minister of Finance Abraham Tekeste said today by phone from the capital, Addis Ababa. External sources account for about one-fifth of the 2013-14 budget.

Expenditure is focused on “infrastructure development, human-resource development and basic services,” Abraham said.

The government is implementing a five-year economic development plan through mid-2015 in which it’s spending 569 billion birr on projects including construction of the $4.3 billion Grand Ethiopian Renaissance Dam, which it’s self-funding, supporting industry and laying down rail links.

The $43.1 billion economy of sub-Saharan Africa’s second-most populous nation grew a “robust” 7 percent in the 2012-13 fiscal year and inflation is expected to ease to 6.6 percent by year-end, the IMF said in an e-mailed statement today following a regular consultation. Consumer prices rose 6.3 percent in May from 6.1 percent in April, according to the country’s statistics agency.

Ethiopia’s government should substitute some domestic financing with external, concessional borrowing to ensure private borrowers have access to loans or else slow the pace of its public investments, the Washington-based IMF said.

Credit Absorption

“Sizeable investment spending of public enterprises continues to absorb a large share of domestic financing and constrain credit available to the private sector,” it said.

Ethiopia’s ratio of public investment to gross domestic product is 19 percent, the third-highest in the world, while its investment rate at 7 percent is the sixth-lowest, the World Bank said in a report last month.

The IMF also called on the government to boost the role of private companies in the economy.

Ethiopia runs a mixed economy in which state companies monopolize or dominate key industries including telecommunications, banking and power while it encourages private investment in manufacturing and agriculture.

“A vibrant private sector is essential to attain middle income status,” by the state’s goal of 2025, the IMF said. “It would be important to foster competition in areas where public enterprises enjoy monopolies, and gradually withdrawing from sectors where they crowd out the private sector.”

To contact the reporter on this story: William Davison in Addis Ababa at [email protected]