PESA
PESA Editorial on Ethiopia: 1H2022/23

PESA Editorial on Ethiopia: 1H2022/23

Ethiopia’s economy has had a slow recovery from the shock caused by the COVID-19 pandemic. Real GDP growth is projected to decrease from an annual average of 7.1% for 2019 to 2021, to 3.8% in 2022. Inflation is projected to increase from an annual average of 21.0% for 2019 to 2021, to 34.5% in 2022. The elevated inflation is caused by the sanctions against Russia which have increased the price of crucial imports. In the medium-term period from 2023 to 2025, real GDP growth is projected to increase to an annual average of 6.3%. Meanwhile, inflation is projected to decrease to an average of 20.6% over the medium-term from 2023 to 2025.

PESA Editorial on Ethiopia: 1H2022/23
PESA Editorial on Ethiopia: 1H2022/23

The Government of Ethiopia’s debt has been moderating since 2020. Ethiopia’s gross public debt is projected to decrease from an annual average of 53.8% of GDP for 2019 to 2021, to 48.3% of GDP in 2022. The decrease in public debt is largely due to the Government of Ethiopia implementing countercyclical fiscal austerity as the economy recovers from the shock caused by the global lockdown response to the COVID-19 pandemic. The fiscal deficit is projected to widen from an annual average of -2.7% of GDP for 2019 to 2021, to -4.0% in 2022. This shows the countercyclical fiscal stance taken by the government as spending and further borrowing increased to support economic recovery. In the medium-term period from 2023 to 2025, the fiscal deficit is projected to narrow to an annual average of -2.9% of GDP. Therefore, public debt is projected to decrease to an average of 38.6% of GDP over the medium-term from 2023 to 2025.

PESA Editorial on Ethiopia: 1H2022/23
PESA Editorial on Ethiopia: 1H2022/23

Ethiopia’s external sector was not negatively affected by the COVID-19 pandemic in 2020 but the sector has begun deteriorating due to sanctions against Russia, which have increased the cost of crucial imports for a country that exports mostly agricultural commodities. Ethiopia’s current account deficit is projected to widen from an annual average of -USD 4.2 billion (approx. -4.4% of GDP) for 2019 to 2021, to -USD 4.7 billion (approx. -4.5% of GDP) in 2022. In the medium-term period from 2023 to 2025, the current account deficit is projected to widen to an annual average of -USD 5.3 billion (approx. -4.0% of GDP). This illustrates a continuous deterioration in the current account balance due to the rising cost imports which is primarily driven by the impact of sanctions against Russia. Therefore, Ethiopian authorities will have to take a proactive approach to macroeconomic management in order to avoid further depreciation of the ETB.

PESA Editorial on Ethiopia: 1H2022/23
PESA Editorial on Ethiopia: 1H2022/23

Ethiopia is scheduled to hold its presidential elections in 2024 and the election campaigning cycle is currently underway. Incumbent President H.E. Abiy Ahmed will most likely be vying for a second term in office using his peace and patriotism rhetoric in order to save a legacy that has been marred by the civil conflict between the Federal Government of Ethiopia and the Tigrayan People’s Liberation Front (TPLF). The current political climate remains tense despite the Government declaring an indefinite Humanitarian Truce to expedite the provision of much needed humanitarian aid to people in need in the Tigray region. The Regional Government of Tigray also announced its commitment to observe the said humanitarian truce and cease hostilities. The Government has transferred more than ETB 1.2 billion (approx. USD 23.3 million) in humanitarian assistance since July 2021. However, it remains unclear whether the truce will deescalate tensions enough to establish meaning dialogue towards a sustainable resolution of the conflict. President H.E. Abiy Ahmed will also seek to quell tensions over the Grand Ethiopian Renaissance Dam with neighbouring Sudan and Egypt. President Ahmed will also seek to play a more meaningful role in conflict resolution across the continent, using the outcomes of resolutions on the Tigrayan conflict and following the exemplary achievements of countries like Rwanda. These remain the central aims in Ethiopia’s regional priorities as a member of COMESA and the EAC, and as the host of the AU.


Siyaduma Biniza

Siya is the Executive Director at PESA.

Siyaduma Biniza

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