The bank slashes Ethiopia’s growth
The World Bank cuts Ethiopia’s economic growth by one percentage point as the world face the worst economic slowdown in 80 years.
Ethiopia is expected to grow at 3.3 percent in 2022, below the 4.1 percent average set for Low Income Countries (LICs). However, Ethiopia is set to grow at 5.2 percent in 2023 and 5.9 percent in 2024. It is down from its forecast made in January, before the war in Ukraine broke out.
The forecast for Ethiopia in 2022 is much lower than the Ethiopian government’s projection. Ahmed Shide, Minister of Finance, last week told the Parliament that actual growth dropped between six and seven percent, down from the 8.7 percent initially set for the current fiscal year.
According to the World Bank Global Economic Outlook released this week, the global economic crisis is posed by the war in Ukraine, which started as Russia launched an offensive just 100 days ago.
The war is exacerbating various risks, including intensifying geopolitical tensions, acute financial stress, stagflation and widespread food shortages across the world, including in Ethiopia. The current high levels of inflation, coupled with a slowing growth, raise concerns that the global economy is entering a period of stagflation, reminiscent of the 1970s.
Stagflation, a combination of high inflation and sluggish growth – has risen, reads the report.
Global growth is projected to slow from 5.7 percent recorded in 2021 to 2.9 percent in 2022 and an average three percent in 2023-24.
The Russia-Ukraine war significantly disrupts activity and trade in the near term, with pent-up demand fading and policy support withdrawn amid high inflation.
The effects of the war, including a more acute inflationary pressure and a faster paced monetary tightening than previously assumed, accounts for most of the 1.2 percentage point revision, to this year’s growth forecast.
According to the report, the war has also exacerbated inflation and global food crisis, hampering recovery especially in developing countries, which has already disrupted the global supply chain, just three months after it broke out.
The report came out a week after Macky Sall, President of Senegal and Moussa Faki, chair of the AU Commission visited President Vladimir Putin in Sochi. The two pressed Putin to find solutions for African shipments blocked and stranded due to the war.
Agricultural commodities mainly wheat and agricultural inputs like fertilizer, could not reach Africa and much of the developing countries. Ethiopia’s import bill has also doubled, with the war estimated to cost 98 billion birr in additional expenses, according to official reports.
The report indicated that central banks may be forced to tighten monetary policy more rapidly than currently expected in order to bring rising prices under control.
Over 60 percent of sub-Saharan countries are in, or at a high risk of, debt distress following marked deteriorations in fiscal balances and increased indebtedness caused by the COVID-19 shock.
Resolving the Russo-Ukraine war peacefully is not optional to end the global economic onslaught, according to experts.