IMF projects Ethiopian growth to return to pre-pandemic rates by 2022
The International Monetary Fund (IMF) has projected Ethiopia’s economic growth to contract in 2020 and 2021, with the growth returning to pre-pandemic rates by 2022.
With the annual IMF October meeting still in session, the fund launched its Global Economic Outlook 2020 report a few days ago. The report cites Ethiopia among the countries to be hit by an economic contraction and further notes that it is likely to have a huge decline in growth that has never been seen in decades. The IMF projection vastly depends on assumptions of COVID-19 impacts.
The Global Economic Outlook 2020 states: “The rural and subsistence-based agricultural sector has been relatively isolated, but the tourism and hospitality services have been hit very hard. The recovery is expected to start gradually in the fourth quarter of 2020, with growth returning to pre-crisis rates by 2022.”
During a briefing on Thursday, director of regional department for Africa with the IMF, Abebe Aemro Selassie said pre-pandemic conditions have less chances of normalization before 2023 or 2024. The same holds for Ethiopia.
Despite limited and declining testing capacities, the rise of COVID-19 cases in Ethiopia is considered as the aiding factor that makes it difficult to recover to pre-COVID-19 conditions.
In line with the claims by the government of Ethiopia, IMF has underscored that the late arrival of the pandemic in Ethiopia has spread the shock into the third quarter of 2020.
IMF also projected Ethiopia’s economic growth measured in Gross Domestic Product (GDP) to contract to 1.9 percent as the Sub-Saharan Africa Region will likely see a three percent contraction this year.
According to IMF projections, both in 2020 and 2021, Ethiopia will further witness declines in its real GDP growth. In addition to the meager 1.9 percent growth set for this year, it is projected to experience a stagnant growth with no real change.
While the region experiences a three percent contraction in its real GDP growth, a five percent more contraction in real per capita income is what Abebe says will unfold in Sub-Saharan Africa, an adverse impact compared to other regions with higher per capita income status. Much of the hard-earned gains now put under greater risks, Abebe warned.
Since the pandemic hit, local economic experts have been projecting low economic growth for Ethiopia as long as COVID-19 continues to impact the lives and livelihood of people. Contrary to the projections of the IMF and local experts, the government forecasted GDP to grow by 8.5 percent in 2020.
AlemayehuGeda (Prof.), a prominent economist, painted a dire look at the growth forecast set for the new fiscal year, predicting it will further contract and even dip into negative 2.7 percent. He pointed out that recovery is going to be sluggish and gradual despite the relatively small number of cases and deaths in Africa.
Back in August, Alemayehu casted his doubt over projections made by the government for the year 2021, on a lecture attended by the public. According to Alemayehu, that estimate is not clear as to whether it takes into account the impacts of COVID-19.
“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 its 8.5 percent growth projection; and this is completely unrealistic,” Alemayehu said. Elaborating on what the 19.7 percent growth incorporates, Alemayehu said the impacts of COVID-19 would force the economy to witness an 11.2 percent contraction, if the virus lasts until the end of 2020. In the worst case, the contraction could further swell up to 16.7 percent.
Speaking to the House of Peoples’ Representatives (HPR) earlier during the week, Prime Minister Abiy Ahmed (PhD) said that the economy grew by 6.1 percent in 2020. Concomitant to earlier projections by the Planning and Development Commission (PDC), which estimated GDP growth to decline to five to six percent in 2020, the actual growth was at 6.1, against the pre-crisis projections set at nine percent.
Apart from the GDP growth scenarios, it is to be remembered that the IMF approved a USD three billion budgetary support for the Home Grown Economic Reform Program the Abiy administration has pursued for nearly two years.
The reform program seeks to adjust the macroeconomic imbalances, sectoral progress and structural changes of the economy. Privatization and liberalization being part of the looming reforms, IMF has pledged to provide USD three billion, although that has yet to materialize. However, officials of the Ministry of Finance said the funds are arriving phase by phase, allotted for specific projects. Haji Ibsa, director of public relations at the Ministry of Finance, said that the funds are arriving on project based approach.
The Ministry takes the recently approved USD 412 million the IMF has disbursed to be utilized for responses to COVID-19. Nonetheless, the IMF has not clearly indicated that these funds are part of the support pledged for the Homegrown Economic Reform Program. Yet, in August alone, IMF was to release USD 350 million as part of support for the reform program. However, with unmet conditions on debt servicing and curbing inflation, the fund pulled back the funds.