ETHIOPIA: GOE REVISES GDP GROWTH RATES UP

UNCLAS ADDIS ABABA 003387

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EINV EAGR ET
SUBJECT: ETHIOPIA: GOE REVISES GDP GROWTH RATES UP


1. Summary. The Ministry of Finance and Economic Development
(MOFED) significantly revised real GDP growth rates to nearly
double the IMF estimate: 11.9 percent (vice 11.6),10.5
percent (vice 9.5),and 9.6 percent (vice 7.1) in fiscal
years 2003/04, 2004/05 and 2005/06, respectively. In
addition to favorable weather conditions, official
explanations for growth were the GOE's overarching efforts to
enhance productivity in agriculture, shift farmers towards
market-driven activities like producing cash crops for
exports, and better agricultural inputs. The IMF and
Economist Intelligence Unit argue that the reported economic
growth is inconsistent with the rising inflationary pressure
and balance of payments constraints. Senior IMF Resident
Representative Arnim Schwidrowski estimated real GDP growth
for 2005/06 to be slightly above 5 percent. End Summary.


2. The government revised sources and coverage of the
national accounts statistics in November 2006, resulting in
an average three-year growth rate of 10.7 percent. According
to the GOE, from 2003 to 2006, agriculture, industry and
service sectors grew an average of 14 percent, 8.5 percent,
and 8.3 percent, respectively. Over 60 percent of the
revised growth came from agriculture, the mainstay of the
economy, contributing nearly half of the total GDP. According
to MOFED, growth rates were revised to reflect a wider range
of data sources, use of primary data instead of relying on
trend assumptions, and greater reliance on CSA survey data
for actual inputs in estimating agricultural value added.


3. MOFED projected 2006/07 growth to be 10.1 percent, higher
than independent estimates. MOFED expects agriculture and
industry sectors to grow by 10.9 percent, and the service
sector by 9.6 percent. Major assumptions for the above
projections include: a declining inflation rate of no more
than 10 percent; further strengthening of efforts to enhance
agricultural production and domestic resource mobilization;
and the continuation of favorable weather conditions,
resource inflow to support investment, and macroeconomic
stability.


4. Real GDP annual growth rates in percent, as reported by
MOFED. The Ethiopian fiscal year runs from July 8 to July 7.
(Note: Previous GDP/Revised GDP)

FY ANNUAL RGDP AGRICULTURE INDUSTRY SERVICE
-------------- -------------- -------------- -------------- --------------
2001/02 1.0/1.6 (2.3)/(2.1) 5.8/8.3 4.6/1.7
2002/03 (3.9)/(3.3) (12.6)/(1.4) 4.6/3.0 2.3/4/5
2003/04 11.6/11.9 18.9/17.3 6.9/10.0 6.7/7.3
2004/05 9.5/10.5 14.0/13.4 4.1/8.1 6.8/8.4
2005/06 7.1/9.6 7.3/11.2 7.6/7.4 6.9/9.2



5. IMF Resident Representative Arnim Schwidrowski told
poloff that other economic data indicate that inflation is
rising, driven by demand pressure and increasing cost of
essential imports. Schwidrowski added that the balance of
payments is also under pressure, as a result of declining
inflows and dwindling international reserves. According to
MOFED, the twelve-month moving average CPI inflation rate
reached 12.7 percent in October 2006: the highest in the
last three years. Schwidrowski said the relatively high
growth that appears in 2003/04 must be weighed against the
severe contraction in the previous year: the result of
widespread famine. Given that the country depends highly on
import of intermediate and capital goods, long-term
investment and macroeconomic stability will be in danger
unless the above pressures abate, noted Schwidrowski. Citing
the devastating socioeconomic effects of low-land floods and
little margin for agriculture growth, the October 2006
Economist Intelligence Unit country report forecasted growth
of the Ethiopian economy in 2006/07 to be 7 percent and
2007/08 to be 5.8 percent.


6. Comment. Current economic trends appear to challenge the
validity of MOFED's assumptions and thus the accuracy of its
revised statistics. Although the IMF has yet to officially
review and comment on MOFED's revised statistics, the Fund's
ResRep called the GOE's revised rates questionable. End
Comment.
WILGUS