By Terin Miller |

Ethiopia is on track for GDP growth of 8.7% this fiscal year the International Monetary Fund said in its latest assessment of the East African nation’s economy. The multilateral forecast growth to slip slightly to about 8% in the 2015-16 fiscal year.

“Ethiopia’s state-led development model has delivered rapid and broad-based growth over many years,” said Andrea Richter Hume, who led a recent IMF mission to the country. “It has also reduced poverty significantly, while keeping inequality low,” she added. The IMF says Ethiopia’s outlook remains “highly favorable, reflecting its significant economic potential and productivity-enhancing investments and reforms.”

The IMF did inject a note of caution, pointing out that Ethiopia’s growth has been driven largely by public investment. In order to generate sustained rapid and inclusive growth, “the private sector will need to play an increasing role,” the organization urged.

The team also recommended Ethiopia increase revenue tax collection, as Ethiopia’s tax-to-GDP ratio remains below the regional average, and that the pace of public investment should remain consistent with macroeconomic stability–and allow for more credit to flow to the private sector.

Stressing the importance of maintaining debt sustainability, the team recommended Ethiopia consider innovative forms of financing, “such as private-public partnerships,” Richter Hume said.

Ethiopia’s progress hasn’t been without difficulties, she noted. Its exports were hit not only by lower worldwide commodities prices, but by the impact of Ebola on travel receipts.

“However, a strong pick-up in foreign direct investment and foreign disbursements to state-owned enterprises allowed gross international reserves to increase modestly,” she said.

Ethiopia has managed to maintain inflation in single digits, though food prices are pushing it toward 10%. For that reason, she said, the IMF team recommended a cautious monetary policy stance, “with particular attention paid to core inflation.”

Source: The Wall Street Journal

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