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Ethiopian Economy Looks Favorable Despite Numerous Setbacks

July 26, 2016 at 07:00 am | Money Moves

Fredrick Ngugi

Fredrick Ngugi | Contributor

July 26, 2016 at 07:00 am | Money Moves

Ethiopian farmers sorting their farm produce. Photo (globalriskinsights.com)

According to a new report by The World Bank, Ethiopia’s economy is thriving due to the government’s focus on key sectors like education, health, infrastructure and social protection.

The report, titled “2015 Ethiopia Public Expenditure Review”, says that the country’s economy looks promising despite numerous setbacks including drought, unemployment and border conflicts with South Sudan and Eritrea.

“The positive steps taken by the government of Ethiopia over the past decade to reorient expenditure from recurrent to capital, the decentralization of resources from federal to regional governments, and the focus on infrastructure have led to broad-based growth,” the report states.

By employing cost-effective approaches, Ethiopia is making remarkable progress in addressing many hurdles that have dogged its education and health sectors over the years.

The government’s continued investment in pro-poor sectors, with the help of external partners, has facilitated the establishment of a larger social safety program in the country and Africa as a whole, benefiting more than 8 million people, according to the report.

Areas to Improve On

According to The World Bank, inequity in resource distribution remains one of the major impediments to a faster and sustainable growth of the Ethiopian economy.

The report urges the Ethiopian government to address the existing difference in access to essential services such as healthcare, education and employment.

Neo-natal mortality reduced significantly for wealthier populations, but increased for the poorest Ethiopians, the report notes.

“In education, while the poorest children are enrolling in primary school, they are increasingly dropping out at higher levels,” it adds.

Health expenditure makes up for one-third of the total out-of-pocket spending in Ethiopia, which the bank claims is higher than in many other low-income countries, preventing many low-income households in the country from accessing quality healthcare services.

Cut On External Borrowing

For the country to develop the critical financial space for increased fiscal sustainability, the government needs to focus on domestic revenue mobilization and reduction in external borrowing, the bank advises.

“Efficient tax administration stimulated by tax reforms, improved capacity and quality of tax administration as well as expanded tax bases could be a major source of additional revenue,” The World Bank suggests.

The Ethiopian government also needs to consider supplementing the current public investment-led approach with enhanced budgetary provisions for operations and maintenance in key sectors such as transport, communication, education, health and water and sanitation.

This, the bank says, will ensure new investments translate into improved service delivery and investor confidence, which will go a long way in boosting the Ethiopian economy.

Ethiopia’s GDP currently stands at 12.7.

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