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World Bank VP says reforms should be “sequenced, carefully planned”

World Bank VP says reforms should be “sequenced, carefully planned”

30 March 2019

Report states 80 percent of Ethiopianshave low living standard

During her final days in her working visit to Ethiopia, CeylaPazarbasioglu (PhD), vice president of the World Bank Group (WBG) for equitable growth, finance and institutions told The Reporter that the ongoing ambitious reforms in Ethiopia need to be “sequenced and carefully considered,” not to end up with unintended consequences.  

 

Visiting Ethiopia since Wednesday, the vice president has met with Officials and paid visits to projects, the WBG has been supporting. Bole Lemi-II Industrial Park project, to which the Bank has availed USD 250 million, was one of her destinations.

One of the findings the Bank has published on its economic update report entails that despite the incentives and amiable provisions, in 2017 exports of goods manufactured in industrial parks accounted for about 2.5 percent of the total goods exports, which are experiencing sharp declines in recent years.

Pazarbasioglu said further that, “the experience with industrial parks can help the government better understand the barriers to increasing foreign direct investment and private sector participation. The lessons from these small controlled environments can then be scaled up more broadly.”

From the lists of macroeconomic downturns, the shrinking performances of the export sector along with the high debt distress status of the country are some of the issues the WBG has been echoing for some time now. To curb such challenges, the government has announced some major reforms including privatizations. According to the vice president, the government, however, needs to carefully plan and implement these reforms.

Pazarbasioglu noted the various reform measures the government is planning to embark up on. She mentioned how the government is looking to reform the financial sector, the tax regime, the private-public sector reforms and privatization. Furthermore, the WBG has expressed commitments to support major reforms, committing a budget financing program for the Government of Ethiopia.

In line with that notion, Pazarbasioglu suggested that the government needs to sequence those reform packages and learn from global experiences to tailor them in accordance to the country’s needs. “The country is not going to be changed overnight. But it is very impressive when one looks at the reform strategies articulated. The challenge will be implementation and we are ready to support it,” Pazarbasioglu said.

When asked whether the government should consider a gradual approach or a leap forward for quicker gains in the process of privatization? The vice president said that the approach “at the end of the day depends on the global economic backdrop.” In a world full of uncertainties and tensions: geopolitical as well as trade tensions; countries are affected by the decisions of investors and for that, the government of Ethiopia has to fine tune those reforms depending on the external environment.”

Before her departure, Pazarbasioglu attended the 7th series of economic update on Ethiopia: “poverty and household welfare in Ethiopia 2011-2016.” The economic update report finds that despite strong poverty reduction and significant consumption growth, 80 percent of Ethiopians still have relatively low living standards on the basis of monetary values.

BerheMekonnen, poverty economist with the WBG Ethiopia, while presenting the findings of the report said that compared to countries with similar GDP per capita, Ethiopia has a low level of poverty though the growth elasticity of poverty – the rate at which GDP growth translates to poverty reduction was low in recent years. The expert said that the severity of poverty in rural areas remained unchanged in 15 years of progress. He added that the poorest segment of the rural population  or the rural bottom 15 percent did not benefit from the economic growth which portrayed Ethiopia as one of the fastest growing nation in the world.

Based on the two household consumption expenditure, surveys conducted twice in 2010/11 and 2015/16, the distribution patterns showed a higher consumption growth in urban areas while consumption growth in rural areas was weak in general.  Consumption growth was also higher at the top, the report indicates. 

In the macroeconomics part of the report, Nora Dihel, senior economist with the WBG, indicated that the government needs to continue its cautious fiscal policy and enhance transparency of State Owned Enterprises (SOE)financial reporting.. “SOE transparency and cautious fiscal policy is required,” the senior economist suggested.

The impact of devaluation, the increasing trends in domestic borrowing in face of declining external credit, reexamining the export sector especially the performance of the industrial parks which has contributed only a 2.5 percent to the over all export last year, the National Bank of Ethiopia’s (NBE) mostly sovereign overdraft facilities are some of the areas the report has suggested to be looked at by the government tounder take an effective reform on the macroeconomic side.

Going forward, the report suggests complementing the cautious fiscal policy with SOE transparency and tax reforms; reforming monetary policy through the development of a domestic government debt market; considering a flexible exchange rate system and additional structural reforms; reexamining the export strategy, and increasing the private sector participation in the economy.