The Federal Democratic Republic of Ethiopia: Selected Issues Paper
IMF Staff Country Reports, October 3, 2014
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Bibliographic details
- Published: October 3, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498335294.002
Summary findings
- For Ethiopia to continue sustaining robust growth, leveraging the transformation power of the private sector, especially entrepreneurs, is essential.
- Ethiopia’s public sector-led development strategy has delivered strong results over the past decade but has been facing significant challenges in recent years.
- A model-based analysis of the country’s investment program indicates that, despite positive long-run growth effects, transition challenges and macroeconomic trade-offs are associated with different financing strategies.
- Comparing Ethiopia’s development experience—especially in terms of structural transformation and competitiveness—with that of selected Asian countries indicates differences which point to possible adjustments in Ethiopia’s development approach.
Model-based analysis of the investment program
- The investment program produces positive long-run growth effects in the model.
- Transition challenges and macroeconomic trade-offs arise depending on the financing strategy chosen for the investment program.
Financing strategies and macroeconomic trade-offs
- Heavy reliance on domestic bank borrowing:
- May require substantial fiscal and macroeconomic adjustments.
- May entail a sharp increase in inflation.
- External commercial borrowing:
- May ease fiscal and macroeconomic adjustments.
- May lead to significant increases in debt to gross domestic product ratios.
Policy implications and recommendations
- Prioritize policies to leverage private-sector dynamism and entrepreneurship to sustain and deepen structural transformation.
- Reassess elements of the public sector-led development strategy in light of emerging challenges.
- Carefully weigh financing choices for large public investment programs:
- Recognize the inflationary and fiscal adjustment risks of heavy domestic bank financing.
- Recognize the sovereign-debt and debt-to-GDP ratio implications of external commercial borrowing.
- Consider lessons from selected Asian countries on structural transformation and competitiveness to inform possible adjustments in Ethiopia’s development approach.