IMF's new report highlights Ethiopia's inclusive growth

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IMF's new report highlights Ethiopia's inclusive growth

By Hailemichael Derese
Tigrai Online, October 21, 2013

Last week, IMF released a highly informative report on the state of the Ethiopian economy, which, according to IMF, "has sustained high growth spurred by bold national plans".

IMF's new report highlights Ethiopia's inclusive growth - Tigrai Online The report assesses the changes under the previous national plan, the "Plan for Accelerated and Sustained Development to End Poverty (PASDEP) 2005/06–2009/10" and the current national plan "Growth and Transformation Plan (GTP) 2010/11–2014/15", which is aimed at sustaining high and broad-based economic growth and achieving the Millennium Development Goals (MDG) by 2015.

In the 23 pages long report titled - "Translating Economic Growth Into Higher Living Standards: Inclusive Growth In Ethiopia", IMF presented a review of the extent to which growth in Ethiopia has translated into higher living standard.

IMF assessed Ethiopia's economic growth in light of its definition of inclusive growth.

The definition reads:

"Inclusive growth is defined as growth which is high, sustained, broad-based across sectors, inclusive of a large part of the country’s labor force, and which results in equality of opportunity—in terms of access to markets and resources—and enables sizable increases in income and living standards of the majority of the population".

The report presents essential features of Ethiopia's socio-economic stride.

The first feature of Ethiopia's inclusive growth, that IMF's report noted, is its focus on Commitment to poverty reduction and structural transformation.

IMF's report observes that:

"A key feature of the economic strategy has been an explicit commitment to poverty reduction and structural transformation.

This is underpinned by the vision of a “developmental state”, whereby a proactive public sector leads the development process and the private sector is oriented to support the development goals."

The report confirms that Ethiopia's growth strategy satisfies one of the key elements of the definition of an inclusive growth, that is: enabling "sizable increases in income and living standards of the majority of the population".

Ethiopia's economy is not only the fastest growing in GDP size but also the top-performer in poverty reduction.

The report stated that:

"Robust economic growth in recent years has been accompanied by significant poverty alleviation. The proportion of people living below the poverty line—US$1.25 a day purchasing-power parity adjusted—has gone down from 60.5 percent in 1995 to 30.7 percent in 2011."

"In comparison, estimates for sub-Saharan Africa—available through 2010—show a relatively modest decline, with the proportion of people living below the poverty line falling from about 60 percent in 1996 to 48 percent in 2010. Ethiopia has apparently outperformed many sub-Saharan African (and some non-African) countries regarding poverty reduction."

Another key feature of the Ethiopia's development path, pointed out by IMF's report is that its effectiveness in "translating economic growth into higher living standards". IMF explained it as follows:

“The quality of economic growth in terms of translating into improved living standards compares favorably with other countries.

An analysis of cross-country correlation between the annual change in the Human Development Index (HDI) and annual change in per capita Gross National Income (GNI) shows that Ethiopia has been more effective in translating economic growth into higher living standards.”

Indeed, as IMF noted, that Ethiopia has managed to improve its population’s living standards by slightly more than would be predicted given its economic growth.

IMF's report debunked the usual claim by the doomsayers that Ethiopia's growth resulted in high disparity in wealth distribution.

To the contrary, IMF's report attested that Ethiopia is one of the most egalitarian country in sub-Saharan Africa.

The report elaborated:

"Among sub-Saharan African countries, Ethiopia is one of the most egalitarian, with a Gini coefficient of 33.6 percent and it has consistently maintained this distribution in the last ten years.

With a large population and more than 80 percent of it in rural areas, Ethiopia stands out among comparable African countries regarding relatively even income distribution."

One manifestation of the fact that the economic growth is benefiting all sections of the population is the rise in consumption expenditure of rural households and poor urban households.

IMF's report revealed that "the poor households in urban areas have benefited the most from economic growth".

Elaborating the progress, the report states that:

"Poor households in urban areas have benefited the most from economic growth.

Household surveys show that families in the lower income percentiles living in cities have increased their consumption expenditures by more than 25 percent from 2004 to 2010.

Consumption expenditure of rural households has also improved for all segments of income."

Inclusive growth by definition refers to a socio-economic progress that is "inclusive of a large part of the country’s labor force, and which results in equality of opportunity".

The Ethiopian economy showed encouraging trends both in job creation and ensuring gender equity, as the IMF report disclosed.

"Unemployment rate declined from 20.4 to 17.5 percent. The labor participation rate increased from 59.7 percent in May 2009 to 62.5 percent in March 2012, with the female labor participation rate showing a strong increase in 2012.

During the same period, the unemployment rate declined from 20.4 to 17.5 percent, driven by a decline in female and youth unemployment.

The share of informal employment also sharply declined in 2012 for both male and female workers, and total employment increased by 26 percent in three years in 2009 through 2012 and by 11 percent in 2012 alone."

Ethiopia's inclusive growth is indeed, a direct outcome of the prudent, disciplined budget allocations and pro-poor fiscal and monetary policies applied by the government.

The report attested the efficiency of Ethiopia's fiscal policy as follows:

“The emphasis on sharing the benefits of growth has been reflected in the structure of government spending.

The authorities have kept public investment (capital expenditure) and pro-poor spending with respect to GDP at a relatively constant average of 10 and 12.4 percent respectively over the last 10-years.

The key to achieving this outcome has been prioritization through the budgetary processes. The strong pro-poor focus has been instrumental in Ethiopia’s progress toward the MDGs.”

In similar fashion, Ethiopia's monetary policy has also been aligned with the developmental goals.

IMF underlined that:

"Monetary expansion has sought to accommodate the needs of a growing economy with credit allocation supporting some priority sectors which are also labor intensive.

The authorities have been cognizant of the deleterious effects of inflation on the poor and in recent years have implemented a tight monetary policy targeting base money growth consistent with single digit inflation."

Let me conclude this article with an inspiring quote from the speech of the new President Dr. Mulatu Teshome.

“It is obvious that Ethiopia today is at an altogether different level than twenty-two years ago. The social and economic changes of theses peaceful years have not only checked the country's down-ward spiral, but have more importantly set Ethiopia on a path of renewal and development. It is important, therefore, to keep in mind that we owe the gains that we are enjoying today to the martyrdom of many.

As the late EPRDF Chairman and Prime Minster often said and proved in practice, the continuity of the gains by the sacrifice of the fallen must be ensured in the present peaceful phase of the struggle for good governance and development through the passing of the mantel from one generation to another.

Hence, it is fitting to pay tribute to the martyrs of peace and development. in the course the last two twenty years of democracy-building process of which the last ten years occupy a unique place in our history, we have entered a new phase of development that has earned the recognition of the entire world. It is clear that the changes we have made so far are the result of our collective effort.”

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