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BusinessEconomy projected to recover, Economists see window to end war

Economy projected to recover, Economists see window to end war

Current forex reserve estimated at USD 3.4 billion

Research groups projected Ethiopia’s economy to accelerate this year, with hopes that the negotiations to end the war in the Northern Ethiopia and the national dialogue initiated this year will bear fruit.

It comes as major segments of the economy, including the mining, construction and tourism sectors, begun to show signs of recovery from the impacts of the war, while the external position of the country showed improvements with forex reserves estimated to reach USD 3.4 billion.

The credit rating agency, Fitch Analyst, predicted that Ethiopia’s economy will grow by 5.2 percent, up by 3.1 percent in 2022. Though the projection is much lower than the nine percent growth forecasted by the government, it is the latest among predictions made by international agencies that 2022 will be a year of recovery.

Cepheus Capital, in its report published this week, forecasted the economy would see a positive growth this year, but it did not deny a slowdown in growth is unavoidable this fiscal year, given developments in the last six-month period. According to Cepheus, a strong growth bounce back is almost inevitable next year, conditional on the assumption of de-escalation in the conflict, as well as a gradual return to normalcy in farming, commerce, and infrastructure links.

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“Based on this presumed backdrop, and some other specific assumptions for the macro framework, we forecast a growth of just one percent this fiscal year followed by 6.5 percent next year,” Cepheus said in its Macroeconomic Handbook for 2022. Two weeks ago, the World Bank also forecasted the economy to see a growth of 4.4 percent this year, and reach 6.5 percent in 2023.

The positive projections made by the three entities comes as warring parties in Northern Ethiopia signal there are hopes of ending the conflict through negotiations, while the federal government announced its intentions to apply peaceful means, after taking the decision not to continue fighting in the Tigray region.

Experts also foresee 2022 to be a year of recovery for Ethiopia.

“The economy will obviously bounce back this year, as sectors that were at a standstill will be productive and farms that were not harvested due to the war will bring outputs, while supply-side obstacles will be averted, which will ensure the flow of goods from one region to another,” said Tiruneh Assefa, an Economist.

Despite an optimistic view of economists, international agencies and research groups, major economic indicators are at a worrisome stage. Inflation is still mounting, reaching 35.1 percent last month, the highest in over a decade, while the government recently reported a record-high budget deficit, surpassing a quarter of a billion birr with an approval of a supplementary budget, complicating the task of policymakers that were already struggling to contain the deficit, unable to finance it with available government revenue.

Economists fear the road to recovery will be long, considering the ongoing conflict in Oromia, the no-war no peace situation in North Ethiopia and the drought in South Eastern part of the country.

“Recovery is not going to be easy unless these problems are contained,” said Sewale Abate (PhD) adding, ensuring peace and stability is the only way for recovery since it would guarantee the safe passage of goods throughout the country.

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