Ethiopia: A Single Digit Inflation by All Means

Hailemariam Desalegn
Hailemariam Desalegn, Ethiopia’s new PM

AFRICANGLOBE – Ethiopia has recorded an impressive drop in its inflation rate from 19 percent in September to 15.8 per cent in October, after new Ethiopian Prime Minister Desalegn Hailemariam promised to slice inflation to a single digit.

In October, Hailemariam debunked a projection from the International Monetary Fund (IMF) and World Bank that Ethiopia’s GDP would grow at 7 per cent in the 2012/2013 fiscal year, insisting that his government’s 11 per cent forecast was achievable.

Shortly after taking over the helm of affairs in the East African country in September, Hailemariam argued that after “registering double digit economic growth for the past seven years” the country was capable of hitting its economic targets.

The new prime minister’s arguments jarred with the failure of the National Bank of Ethiopia’s (NBE) to reduce inflation to single digits by mid 2012. Year-on-year inflation edged up to 20.2 per cent in August, from 20.0 per cent a month earlier, following the rise of non-food inflation from 19 per cent in June to 19.8 per cent in July.

In June 2012 the Breton Woods institutions revised its growth forecast for Ethiopia down from 5.5 percent to 7 percent, despite a constant decline in inflation since July 2011 when it soared past 38 percent.

“Single digit-inflation projections in the plan appear unrealistic as long as there is a loose monetary policy and a heavy dependence on public-sector financing on bank credit continue,” the IMF said in a statement in October 2011. It also urged Addis Ababa to review monetary restrictions that were driving up inflation.

Ethiopia has been steadfast in its determination to attain its set growth levels, set out in a five year Growth and Transformation Plan between 2010 and 2015. Desalegn said last month that his plan was to increase agricultural productivity in order to stabilise price hikes and “increase our savings and other measures to tackle the inflation”.

The Ethiopian government says it lowered “inflation by subsidising oil and wheat” in its bid to stabilise inflationary pressures. The action saw a drop in inflation for an eighth consecutive month from 17.6 percent in September to 13.2 percent in October. The non-food inflation rate slowed to 20.1 percent.

The new rates follow projections made by the IMF in its World Economic Outlook in October 2012 that GDP in Africa would grow from 5.3 percent to 5.7 percent in 2013, as domestic demand, oil discoveries and investment rises.

Ethiopia is mainly supported by its coffee earnings, with gold, oilseed and livestock exports also contributing to the country’s economy. The country in the horn of Africa has embarked on a multi-billion dollar energy sector development programme to become one of Africa’s major exporters of electricity.