Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Ethiopian Finance Minister Ahmed Shide introduced on 10 June
the government's budget for fiscal year (FY) 2019/20, starting on 8
July, which included spending of USD13.48 billion, a 1.6% increase
on the previous year.
He also highlighted the country's vulnerability to current
foreign-exchange shortages in his speech as well as importance of
value addition and further private-sector participation in the
economy.
The Ethiopian finance minister highlighted that it was
impossible to achieve the 11% growth envisaged in the government's
growth and transformation plan during FY 2018/19 given the
country's disappointing export data. Growth is expected to have
reached 9.8% instead.
The need to reduce non-performing loans and attract further
foreign investment and aid to Ethiopia are necessary to generate
the sufficient funds for the USD13.48-billion budget.
An aim is also to reduce the share of the agricultural sector
in GDP, while maintaining sufficient food supply to the country.
Overall, 63.3% of the capital budget is allocated to the
agriculture sector, education sector, roads, water sector,
healthcare, and urban development.
The government intends to allocate 33.9% of the total budget to
capital expenditure, focusing on the completion of existing energy
and infrastructure projects.
Ethiopia's administration managed to reduce government spending
by 34.1% during the last fiscal year. Efforts to increase tax
revenue will be high on the agenda during FY 2019/20 as last year's
tax revenue performance was below target due to structural
problems. Furthermore, around 74% of revenue collection is targeted
to come from tax revenue in FY 2019/20. Additionally, the aim is to
restrict the spread of business loans with regards to the country's
foreign-currency debt consolidation; instead, there is a great deal
of interest in using non-performing loans.
The country's exports continue to underperform. Weaker growth
primarily in coffee exports and other agricultural goods was the
main driver of the dip in exports during the course of the last FY.
Ethiopia's export base remains largely exposed to externalities due
to its still strong dependence on agricultural commodity exports,
contributing to the economy's foreign-exchange shortages.
Consequently, it is essential for the country to continue to
diversify the export base. Long-term export growth is expected to
benefit from increased production levels in the manufacturing
sector, including particularly the textile and automotive
industries, which last year witnessed significant foreign
investment growth.
Improving value addition in the manufacturing sector is expected
to remain challenging amid the foreign-exchange reserves
limitations. Manufacturers continue to report difficulties in
accessing foreign exchange as part of buying production inputs,
which ultimately pushes prices up. Retail trade is currently
driving the service sector and the urgency to diversify the economy
remains challenging in the near term, causing vulnerability and
weakness in the country's export performance.
IHS Markit expects softer growth of the economy for this year.
Figures for the first quarter of 2019 suggest that domestic
investment as well as export growth slowed. Additionally,
government spending slowed during the last fiscal year to 34.1%
annual growth. The slowdown in investment growth will impact on
Ethiopia's growth trajectory, as it has been the key driver of
growth over the last few years. We expect fiscal and monetary
policy to remain prudent. The finance ministry anticipates a 6%
depreciation of the Ethiopian birr in FY 2019/20. The likelihood of
a further devaluation of the birr to raise export growth to
compensate for a slowdown in public investment's contribution to
GDP growth will depend on the success in attracting further foreign
investment to the economy.
Posted 15 July 2019 by Alisa Strobel, Senior Economist