Sovereign Analysis / Ethiopia

Ethiopia: Conversation with the National Bank of Ethiopia

  • Macro indicators have surprised to the upside in 2019/20 despite Covid, with positive growth and unchanged imbalances
  • Ambitious reform program focuses on privatisation and liberalisation, with the NBE modernising monetary and FX policy
  • We are slightly more positive on Ethiopia’s ability to manage macro imbalances and private sector transition
Ethiopia: Conversation with the National Bank of Ethiopia

We held a Tellimer Insights Pro client call with Melesse Tashu, Senior Macroeconomic Advisor to the Governor of the National Bank of Ethiopia (NBE), and summarise our key takeaways below.

Ethiopia has registered strong economic growth over the past decade and a half, averaging c8-10% per year. Covid has impacted key sectors like hospitality, air transport, and textile and leather manufacturing, but the overall impact has not been that bad and preliminary estimates put 2019/20 growth (ending June 2020) at 6% versus an initial 9% projection.

Key exports including coffee and flowers have performed surprisingly well, with overall exports rising 12% yoy in the year through June. While private transfers fell c13% yoy in 2019/20, they have also recovered in the past two months. As a result, the current account deficit actually narrowed in 2019/20 despite a drop in private transfers and tourism revenue, and reserves were down only slightly on the year to cUS$3.1bn and have since rebounded to US$3.3bn (albeit still low relative to imports, at 2.1 months using IMF import forecasts).

On the fiscal front, the 2019/20 deficit is estimated to have been broadly unchanged at 2.5-2.6% of GDP, with taxes actually rising 17.6% on the year despite the Covid-induced slowdown and bucking the recent trend of revenue under-collection. In addition, public sector external debt actually declined from 28.2% in the previous year to 26.6% of GDP. Despite increased social spending, the deficit is likely to remain broadly unchanged this year too, owing to conservative projections.

Lastly, on the monetary policy front inflation has continued to surprise to the upside, ending 2019/20 at 21.6% on the back of a series of shocks. Inflation slowed to 18.7% yoy in September, but it remains elevated. The NBE plans to gradually unwind its post-Covid liquidity injections to the banking sector this year to keep inflation on its present downward trajectory.

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