Commentaries | May 11,2019
The World Bank appears to have regained its confidence and restored its “trust” in the government of Ethiopia to resume direct budgetary support, after years of interruptions following electoral disputes.
It was in the 2005 national elections where the Bank and many other development partners switched their support from direct budget support to protection of basic services. Protesting the killing of many protestors and the arrest of opposition leaders, human rights advocates and journalists, the donor community had declared trust had been breached by the government to continue with the form of support that required a high degree of confidence.
“We now trust the government,” said Carolyn Turk, the Bank’s country director based in Addis Abeba. “Dialogue for significant reforms, the foundation for a functioning economy, is ongoing.”
She, alongside her colleagues, met members of the media on Wednesday, November 14, 2018, and said the Bank is impressed with the vision upheld by the administration of Prime Minister Abiy Ahmed (PhD) for the future of Ethiopia. They attributed the recent decision by the Bank’s board of directors to provide 1.2 billion dollars in direct budgetary support as a signal of “real support in the structural reform” the government wants to implement. Half of the amount is given in the form of a grant to help the economy recover from its debt distress. This came in addition to the eight billion dollars the Bank has committed to Ethiopia, paying for close to 29 projects.
The Bank’s experts portrayed a positive outlook for Ethiopia’s economy, projecting it to expand by 7.7pc in the current fiscal year. This makes the economy one of the fastest growing economies in the world, according to Bank officials.
The structure of the economy is changing with industry leading the rate of growth last year, followed by services and agriculture. With significant increase reported in the inflow of foreign direct investment, the nation’s current account has shown a moderate improvement, although the forex reserve sits at 2.8 billion dollars, only enough to cover imports of 1.6 months.
Inflation is down, and public expenditure remains unchanged, despite a drop in domestic revenues mobilisation owed to tight monetary and fiscal policies. But there has not been any additional non-concessional loans taken over the past six months, helping the balance of payments, hence a stable medium-term outlook, according to the Bank’s officials.
But they insisted such a positive outlook needs to be complemented with further reforms in a host of areas from the energy, telecom and logistics sectors to legal and regulatory reforms.
“The inefficiency in Ethiopia’s economy requires consistent change and reforms to improve,” said Turk. “The government put forward its desire for reform in broader terms, but we provide finance and technical support.”
One of the areas the Bank is considering to provide technical support is in the privatization process of state-owned enterprises engaged in the telecom and logistics sectors of the economy. A technical committee is established under the Ministry of Finance with the involvement of the UK Department of International Development. The committee has developed terms of reference to hire international consulting firms, which will advise the government on how to prepare the ground for partial privatisation efforts, according to sources close to the case.
The Bank has a desire to see the government liberalise sectors in the telecom, energy and infrastructure sectors, while it wants to see reforms in regulation concerning investment, climate, trade and finance. The Bank’s officials believe with the change of administration, Ethiopia’s government is now serious about the reforms it wants to pursue.
“The previous discussions never went anywhere,” said Mathew Verghas, a macroeconomist with the Bank. “Previously, these were discussed but not acted upon.”
PUBLISHED ON Nov 21,2018 [ VOL 19 , NO 969]
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