Ethiopia’s National Planning Commission says economy has grown by eight percent

The National Planning Commission of Ethiopia has disclosed that the country's economy grew by 8% in the 2008 Ethiopian fiscal year (2015/16). In a press briefing on Friday last week (December 2), Dr. Yinager Dessie, Commissioner of the National Planning Commission said the projected target had been 11% and the main reason for failing to achieve this figure was the worst ever El Niño-caused drought which the country had faced during the previous fiscal year. The drought had led to failed harvests, and 95% of the country's meher (main harvest) production had been affected. The economy had seen rapid growth in the manufacturing and service sectors but it still remained significantly reliant on agriculture. Inevitably, the El Niño climate phenomenon hit Ethiopia's economy hard, with the record dry weather undermining the all-important agricultural sector.

Last year, the agricultural sector accounted for only 36.6% of real Gross Domestic Product (GDP), compared to 44.4% five years ago, showing a slight shift away from dependency on agriculture. Dr. Yinager said that by contrast the industrial and the service sectors accounted for 16.6% and 47% of GDP respectively, both showing significant growth compared to the results registered in past years. Overall, of course, Ethiopia has experienced double-digit economic growth for over a decade.

The 5th Ethiopian Economic Update released on December 2 by the World Bank also agreed with the Planning Commission that "the Ethiopian economy grew by 8.0 in 2015/16 due to the recent drought affecting agricultural production with spillovers on the trade sector." It revealed that the fiscal deficit was virtually unchanged in 2014/15 and 2015/16. The general government fiscal deficit remained modest at 2.4% in 2015/16 despite the extra spending to finance drought affected areas. This, according to the report, was because of an increase in revenue collection, mainly from non-tax sources. This compensated for the increase in total expenditure and helped to contain the fiscal deficit. Inflation remained remarkably stable despite the recent drought and indeed even declined; it stood at 5.6% in October 2016.

In a recent review of Ethiopia's macroeconomic performance, the International Monetary Fund praised the government's efforts to tackle the adverse conditions it faced in fiscal year 2015. According to the IMF, government policy essentially alleviated the negative effects of the severe drought, preventing this from causing even greater devastation. It underlined that any economic slowdown was mitigated by effective and timely policy responses to the drought, and buoyant industrial and services sectors. A supplementary budget helped address the social costs of the drought, while keeping the general government deficit at 3 percent of GDP.

In an interview, Commissioner Dr. Yinager emphasized the need to enhance the capacity of the government in collecting revenues in the second Growth and Transformation Plan. He noted the importance of strengthening the mobilization of domestic revenues to finance development strategy. Dr. Yinager said remittances, which are one of the major hard currency earning mechanisms of the country, should get further attention to increase the benefit. He added that in 2015/2016 fiscal year the revenue collected from remittances, US$ 4 billion, was higher than the aggregate annual exports of the country. He also noted that despite the predictions of a few analysts that economic growth would be affected by the unrest in some parts of Oromia and Amhara regions that have seen demonstrators attack some foreign-owned factories and flowers farms, the state of emergency declared on October 8, had restored order in the country before it could affect the economy. The Planning Commission has underlined that if the agricultural sector performs well the economy would also be in good shape. The country is witnessing signs of an excellent harvest for this meher season. The economy for 2016-2017 is expected to show an improvement on the previous fiscal year.