Sunday, May 26, 2024
BusinessEconomic expert projects negative GDP growth

Economic expert projects negative GDP growth

Two mln jobs likely to be lost

Alemayehu Geda (PhD, Prof), a prominent economist, has painted a dire look at the economic growth set for the new fiscal year, predicting it will further contract and even dip into negative 2.7 percent.

Discussing his findings, which he originally analyzed in May and updated with the ever-changing scenarios, Alemayehu casted doubt towards the GDP projections made by the government for 2021 and is doubtful. By the estimates of the government, the GDP growth forecast was set at 8.5 percent. According to Alemayehu, that estimate is not clear as to whether it takes into account the impacts of COVID-19.

Back in April, the government had announced it slashed growth forecasts for the concluded fiscal year, to contract to six percent, from the previous nine percent. However, this year’s growth is set at 8.5 percent.

Speaking at the newly formed Civil Society Forum, Good Governance Africa, Eastern Africa Chapter on Friday, Alemayehu said that the government might need a highly expansive growth rate to achieve an 8.5 percent growth.

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“It is not clear whether the possible impacts of COVID-19 have been taken
into account in this forecast. If it is not, the government needs a growth rate of 19.7 percent to attain this 8.5 percent level of economic growth, with the COVID effect included; and this is completely unrealistic,” Alemayehu said.

Elaborating on what the 19.7 percent growth incorporates, Alemayehu said the impacts of COVID-19 will force the economy to witness an 11.2 percent contraction, if the virus lasts till the end of 2020. In the worst case, it is projected that the contraction could further swell up to 16.7 percent.

“On the other hand, if the possible effects of COVID were not taken into account, the growth, including the COVID effect, will be negative 2.7 percent (almost a 3 percent decline) under the average scenario that is envisaged in this study (in the best-case scenario of a 5.6 percent economic decline due to the pandemic).” That according to the expert could mean a three percent growth in the new fiscal year.

The contraction of the economy mostly is anticipated to be largely felt by the service and industry sectors. Both sectors contribute some 70 percent of jobs to the urban population. The economist suggested that out of the seven million wage employees and three million self-employed, his revised projections have indicated that some two million jobs could be lost resulting in loses of 2.5 billion birr of monthly incomes. By his estimates, 1.7 million self-created jobs and some 300,000 private firms are likely going to feel the impact.

Furthermore, out of 500 firms surveyed by the World Bank and the Job Creation Commission, 23 percent of these firms are waiting for the State of Emergency to be lifted, so that they could fire employees.  

To avert the growing socio-economic shock, Alemayehu advised the government to mind its expenditure, mostly on the capital side. However, the newly approved 476 billion birr budget has indicated a 23 percent increment from the previous year. That has resulted in some 143 billion budget deficit. Coupled with the USD two billion debt servicing, with the existing 23 percent inflation rate, and with the widening depreciation of birr, Alemayehu fears there will be a possibility of an economic shock.

The expert indicated that a 10 percent depreciation in purchasing value of a particular currency, coupled with a 10 percent increase in money supply- to finance deficit via money printing- could certainly result in a 20 percent rise in inflation. Hence, Alemayehu recommended a policy response that focuses on areas that could expand revenue.

The Ministry of Finance made it clear that the tight fiscal policy is not going to be considered for the new fiscal year. Instead, according to Eyob Tekalign (PhD), State Minister of Finance, expansionary fiscal policy mostly centered on addressing health and social predicaments have been slated.

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