The lower house of the Ethiopian parliament. (File Photo)

PM: Economy Will Grow 7.9% this year

ADDIS ABABA – The economy will grow 7.9 percent in the current 2023/24 fiscal year, said Prime Minister Abiy Ahmed, and added Ethiopia has the necessary resources to repay its foreign debts.

The Ethiopian economy is facing challenges stemming from double-digit inflation, debt repayments, shortage of foreign exchange, and adverse effects of climate change, recent conflicts, and foreign pressure.

Yet Prime Minister Abiy insisted that the economic recovery is proving resilient while responding to members of parliament queries on Tuesday.

Abiy said the East African nation is one of the countries in the world recording rapid economic growth, projecting its economy to further expand by 7.9% in the current Ethiopian fiscal year that started on July 8.

In October, the International Monetary Fund (IMF) had projected the country’s economy to grow by 6.2% by the end of 2024, on the backdrop of a 6.1% economic growth in 2023.

Abiy’s forecast was made on account of increasing production output and fiscal adjustments that his administration is pursuing. “Particularly, the agriculture sector has shown very effective work; adjustments made in fiscal and monetary policy are also registering significant changes,” he said.

Addressing the parliament, the PM said inflation remains the country’s biggest socio-economic challenge, mainly due to low national productivity and the lack of strong market reform.

However, he noted that the headline inflation ceded to 28%, down 2 percentage points from last year. Yet the rate of deceleration seems off track with the central bank’s target of taking the inflation down to 20% by the end of 2024.

Abiy said tackling it requires more efforts including repeating the success seen in wheat and rice production to other crops. The increase in wheat harvest helped the country to become self-sufficient as of last year, saving “between 700 to 800 billion Birr” worth of forex in annual spending on imports.

Invest & FDI inflow

According to the PM, Ethiopia recorded foreign direct investments inflow valued at 1.5 Billion US Dollars in six months after securing $3.7 Billion in foreign investments last year.

In the same months, the government significantly reduced domestic borrowing partly to boost investment by increasing credit to the private sector.

Accordingly, the PM says 83% of the 180 billion Birr of the total loan the banks allocated went to the private sector in the half-year during which over one million new jobs were created and 150,000 more job opportunities facilitated overseas.

Tax-to-GDP ratio Still below 10%

The first half of the current fiscal year also saw the government’s revenue from tax grow by 17% to 265 billion Birr, attaining 98% of the target set at 270 billion Birr.

Although this performance is encouraging, the PM admits that its tax-to-GDP ratio remains less than 10% which is way below the East African average of 15%. Ethiopia relies on a fairly narrow tax base to raise government revenue partly due to its large informal sector, and weak tax administration.

This reflects that the tax reforms need to shore up to raise more funds to support the economic development with public support, Abiy noted.

According to the Prime Minister, the East African nation secured a little over 4.5 billion US Dollars from commodities and services export.

“We estimate that this income will at least be the same as last year,” the Prime Minister said, which was $10.7 Billion. Conversely, the country carved out 7.5 Billion US Dollars on imports after spending around $17 billion last year.

‘Debt Stress’

The PM Abiy’s administration has continued to stick with its five-year-long policy of not taking commercial loans. Simultaneously, it has made payments totaling USD 9.9 billion to external creditors.

“This has resulted in a significant success” in easing debt stress, he said, pointing to the drop in the national debt ratio to the GDP from 32% in 2018/19FY to 17% at the end of 2022/2023FY.

“Our primary goal is to take the ratio down below 10 percent,” the PM said while engaging in debt restructuring talks under the Group 20’s Common Framework process.

The PM also pushed back reports of default after Ethiopia withheld its December coupon payment of $33 million to its one billion USD Eurobond.

Ethiopia has the necessary resources to repay its foreign debt, PM Abiy said, citing that Ethiopian Airlines alone generates $33 million in daily revenues which allows the country to easily repay the figure owed to Eurobond creditors.

The government already disclosed that it would treat all its external creditors equally to work on debt restructuring to facilitate repayments.