IMF: Ethiopian economy needs revamp to avert slowdown

November 6, 2013, Addis Ababa (Reuters) — Ethiopia’s economy has reached a crossroads and, to prevent growth rates from falling, needs to be restructured to encourage more private sector investments, the International Monetary Fund said on Wednesday.

Economic output should grow 7.5 percent in each of the next two fiscal years, to July 2014 and 2015, down slightly from the 8.5 percent in 2011/12, Jan Mikkelson, the IMF’s representative in Ethiopia, told reporters.

It expects year-on-year inflation – which dipped to 6.9 percent in September from 7.0 percent in August – to remain in single digits.

The government has reported double-digit GDP growth for much of the past decade, but some economists say those figures are inflated.

It said in July it expected the economy to maintain a growth rate of 11 percent in 2013/14.

Growth has been propelled by huge public spending on infrastructure, while an expansion in services and agriculture has also boosted the economy. Ethiopia’s exports include coffee, horticultural products and livestock.

“However, without policy adjustments to address the large consolidated public sector, fiscal deficit and structural bottlenecks, economic growth is projected to taper off in subsequent years,” Mikkelson said.

The World Bank says infrastructure spending required financing equivalent to 19 percent of Ethiopia’s GDP in fiscal 2011-2012.

Mikkelson said Ethiopia, which is also a big aid recipient, needed to allow more private sector involvement in driving further growth of the economy.

“While Ethiopia’s public sector-led development strategy has led to results, it is now at the crossroads. There is a need to carefully consider the balance between public and private sectors in the economy,” he said.

“Economic policy … should address this by gradually reducing and streamlining the role of the public sector in the economy and developing a strong and vibrant private sector.”

In May, Mikkelsen had forecast economic growth would slow to an estimated 6.5 percent this fiscal year.

He said the new figures given on Wednesday were due to a change in the methodology used to calculate them.