News / Africa

    World Bank, IMF Fault Ethiopia's Economic & Development Policies

    Workers inspect coffee beans in Ethiopia
    Workers inspect coffee beans in Ethiopia

    International financial institutions are urging Ethiopia to shift its emphasis away from central economic planning and adopt more market-oriented policies. Two departing senior economists are pointing to the need for a change of course to revive Ethiopia’s battered private sector and spur much-needed investment.

    In separate interviews this week, the country directors of the World Bank and International Monetary Fund,  IMF, commended Ethiopia’s strong growth in the recent past. Despite a series of setbacks that have kept it among Africa’s poorest nations, government statistics indicate double-digit growth for the past several years.

    But both the World Bank’s Kenichi Ohashi and the IMF’s Sukhwinder Singh warn there may be tougher days ahead, spurred partly by uncontrollable external forces, but also by misguided economic policies such as price controls. As a result, the inflation rate has shot up to 30 percent.

    Last week the IMF refuted the government growth estimate of 11.4 percent for the past year, saying 7.5 percent is more realistic. A statement forecast even lower growth of about 6 percent for the coming year. Country Director Singh says the downturn is due in part to a more restrictive business climate.

    "We feel that in some areas the environment for the private sector has become a bit more difficult in recent months. If you add on the fact of recent policy changes that had an adverse impact like price ceilings, and if you add to that the fact that the government has taken a significant share of credit from the banking system for lending directly itself, I think these are factors that in our view moderate the growth prospects compared to where we were before," Singh said.

    The IMF statement welcomed the recent lifting of most price controls imposed earlier this year, but suggested that Ethiopia’s five-year economic plan might be overambitious. It cautioned that the plan’s success would hinge on whether the private sector is allowed to thrive.

    Singh says the government needs to rethink policies such as diverting scarce loan money from private institutions to a state-run development bank.

    "If you take a lot of resources from the system and keep it for the government, you’re killing the goose that lays the golden egg. We’re not saying the government shouldn’t take a leading role, or the government shouldn’t do many productive things, but it’s a question of balance and speed," Singh said.

    The World Bank’s Ohashi argues that diverting scarce resources to the state is preventing Ethiopia’s weak private sector from taking the risks that spur economic growth.

    "Here the government would argue the private sector is very immature, but the way they’re going about nurturing or fostering private sector development seems too control-oriented. Private business people are willing to take risk, and the government should allow them to take whatever risk they wish to take and see if they can find new areas where Ethiopia can succeed instead of dictating where investment should go," Ohashi said.

    Ohashi says he sympathizes with the sense of urgency that seems to be driving the state’s move to take the lead role in the economy. But he says state planners are finding it impossible to jump directly to rapid growth without first creating a favorable business environment.

    "They were too impatient. I’m sympathetic with impatience, you don’t want to be complacent; but you have to go step by step, and they’ve tried to jump too many steps at once. And basically they’re finding out they can’t do that," Ohashi said.

    In a series of essays published in a local business newspaper as he prepares to retire, Ohashi questions whether it may be time for Ethiopia’s leaders to reconsider the state’s massive investment in development projects. He suggests it might be wiser to focus more on fostering private investment and improving the quality of education.

    "To some extent it’s great for the government to be foresighted and invest in infrastructure and create an environment good for private investment, but if private investment is not following, you need to pause and evaluate whether just charging ahead with massive public sector investment is where the focus should be or perhaps pay more attention to making sure the private sector is catching up. Seems to me there’s a bit of divergence here," Ohashi said.

    Both the World Bank and IMF representatives noted progress in expanding access to basic education and health care services, and to develop a more dependable safety net in Africa’s second most populous country.

    But Ohashi says a host of worrisome signs continue to raise concerns among the donor community. As he wrapped up an hour-long interview, he paused for a moment, then asked, “How do you deal with a situation where the picture is so mixed?”

    You May Like

    Vietnam Mulls Tough Measures for ‘Misbehaving’ Chinese Tourists

    Move comes after footage surfaced online of Chinese travelers harassing a banana hawker in Da Nang

    Pakistan Social Media Star's Honor Killing Fuels Debate

    Qandeel Baloch's murder puts spotlight on deadly tradition and other mistreatment of women

    This forum has been closed.
    There are no comments in this forum. Be first and add one

    By the Numbers

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Wall Already Runs Along Parts of US-Mexico Borderi
    July 22, 2016 12:30 AM
    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.

    Video Poor Residents in Cleveland Not Feeling High Hopes of Republican Convention

    With the Republican Party's National Convention underway in Cleveland, Ohio, delegates and visitors are gathered in the host city's downtown - waiting to hear from the party's presidential candidate, Donald Trump. But a few kilometers from the convention's venue, Cleveland's poorest residents are not convinced Trump or his policies will make a difference in their lives. VOA's Ramon Taylor spoke with some of these residents as well as some of the Republican delegates and filed this report.

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.

    Video With Yosemite as Backdrop, Obama Praises National Parks

    Last month, President Barack Obama and his family visited some of the most beautiful national parks in the U.S. Using the majestic backdrop of a towering waterfall in California's Yosemite National Park, Obama praised the national park system which celebrates its 100th anniversary this year. He talked about the importance of America’s “national treasures” and the need to protect them from climate change and other threats. VOA’s Julie Taboh reports.

    Video Counter-Islamic State Coalition Plots Next Steps

    As momentum shifts against Islamic State in Iraq, discussions are taking place about the next steps for driving the terrorist group from its final strongholds. Secretary of State John Kerry is hosting a counter-IS meeting at the State Department, a day after defense ministers from more than 30 countries reviewed and agreed upon a course of action. VOA Pentagon correspondent Carla Babb reports.

    Video Russia's Participation at Brazil Olympic Games Still In Question

    The International Olympic Committee has delayed a decision on whether to ban all Russian teams from competing in next month's Olympic Games in Brazil over allegations of an elaborate doping scheme. The World Anti-Doping Agency recently released an independent report alleging widespread doping by Russian athletes at the 2014 Winter Olympics in Sochi. So far, only Russian track and field athletes have been barred from the Summer Games in Brazil. VOA's Zlatica Hoke has more.

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.

    Video Millennials Could Determine Who Wins Race to White House

    With only four months to go until Americans elect a new president, one group of voters is getting a lot more attention these days: those ages 18 to 35, a generation known as millennials. It’s a demographic that some analysts say could have the power to decide the 2016 election. But a lot depends on whether they actually turn out to vote. VOA’s Alexa Lamanna reports.

    Video Number of Syrian Refugees Arriving in US Jumps

    The United States is committed to resettling 85,000 refugees from around the world by October. Of that number, 10,000 will come from Syria and already some 4,000 Syrian refugees have arrived in the United States, many of them settling in the state of Illinois. As VOA’s Kane Farabaugh reports from Chicago, their arrival is not the end of a difficult journey to find peace and stability.

    Video Rio’s Trams Await Olympic Tourists

    Over the past century, many cities around the world replaced electric trams, prone to breakdowns and backups, with faster and more spacious buses. But for some reason restored antique trams are a huge tourist attraction. So it’s no wonder the authorities in Rio de Janeiro are busy restoring their city’s old tram line ahead of the Summer Olympic Games. VOA’ George Putic reports.

    Special Report

    Adrift The Invisible African Diaspora