Ethiopia's Growth Plan Raises Economic Risks, World Bank Says
October 30, 2011, 12:22 AM EDT
By William Davison
GRAIN - Grabbing Gambela
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Oct. 28 (Bloomberg) -- Ethiopia's economic growth plan is "over-ambitious"
and relies too much on state-owned companies to boost manufacturing, a World
Bank official said.
The government is taking "macroeconomic risks" to achieve its growth goals,
Greg Toulmin, acting country director, told reporters in the capital, Addis
Ababa on Oct. 25.
Ethiopia is spending 569.2 billion birr ($33 billion) investing in industry
and infrastructure as part of a five-year growth plan that runs until July
2015. The government is counting on its state enterprises, such as Sugar
Corp. and Metal and Engineering Corp. to develop the East African nation
into a major sugar exporter and power provider for the region.
"We don't think having state-owned enterprises doing manufacturing is the
right way to create sustainable growth," Toulmin said. "If the goals are to
be achieved then the private sector has really got to scale up its activity.
There's got to be a significant expansion of manufacturing."
Metal and Engineering is in charge of the electro- mechanical works for
Africa's biggest power plant, the $5 billion Grand Renaissance Dam on the
Blue Nile river, and is also the Sugar Corp.'s major contractor for 10 new
factories.
Plans to boost borrowing from abroad to 7.5 percent of gross domestic
product annually over the next four years may lead to "debt distress", the
International Monetary Fund and World Bank said in a report on Oct. 13.
While indications from the first year of the growth plan is that debt will
remain manageable, other less risky options to raise revenue, such as ending
the state telecommunications monopoly, are not under consideration, Toulmin
said.
'Highly Distorted'
"The government is choosing quite deliberately to take some major
macroeconomic risks as it believes that is the way to achieve a high level
of growth," he said. "Our concern and the International Monetary Fund's
concern is that we don't think the risks they are taking are appropriate."
The IMF said on Oct. 13 that Ethiopia's "highly distorted" monetary policy
requires an overhaul as accelerating inflation and "entrenched negative real
interest rates" threaten macroeconomic stability.
Ethiopia's government aims to curb inflation to less than 10 percent from
40.1 percent reached in September, while targeting economic growth of 11.2
percent.
--Editor: Nasreen Seria
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Received on Sun Oct 30 2011 - 16:10:25 EDT