Ethiopia will remain one of the highest growth economies in Africa over 2016 and 2017 as the state drives large-scale investment in the economy. We expect the government's continued investment into improving infrastructure and the agricultural sector will provide opportunities for the population to become increasingly engaged in the economy.
We expect monetary policy in Ethiopia to remain loose over the year ahead as the National Bank of Ethiopia increases money available for lending to the government. Furthermore, we do not expect the National Bank of Ethiopia to devalue the currency given the risk associated with a pass through to inflation.
The Ethiopian government will drive up capital expenditure in the next two years in line with its ambitious budget announced in 2015. Ethiopia's budget deficit will rise to a peak of 3.1% of GDP over the next two years as the government pushes forward with the second phase of its Growth and Transformation Plan.
We expect Ethiopia's current account balance to remain firmly in deficit over the next two years as imports of capital goods strongly outweigh exports from the country. Official aid in the wake of the drought will provide substantial foreign exchange as support for the country's sizeable current account deficit.
Political risk in Ethiopia will remain heightened as the government pushes the predominantly agrarian economy towards industrialisation. Furthermore, we expect tensions to rise between the government and its citizens as the government exerts excessive pressure on the public to make way for the expansion of the capital, Addis Ababa.
While inflation has slowed markedly from the high levels witnessed in 2011/12, inflation will continue to represent a key risk to macroeconomic stability. Food price inflation in particular will remain a concern, with unpredictable weather a constant threat.
As is the case for many African nations, Ethiopia is highly susceptible to volatility in global markets, particularly commodity prices (notably coffee and gold), which can in turn pose both upside and downside risks to export revenues and headline growth.
Public sector debt levels have risen dramatically since the implementation of government's Growth and Transformation Plan and the need for government financing will increase. Government financing needs will rise as public sector investment continues under Ethiopia's aggressive growth strategy.
|e/f= BMI estimate/forecast. Source: National Sources/BMI|
|Nominal GDP, USDbn||53.2||61.6||70.0||78.5||87.4|
|Real GDP growth, % y-o-y||10.3||8.1||7.8||7.6||7.7|
|Consumer price inflation, % y-o-y, eop||7.1||11.8||10.0||8.5||8.5|
|Exchange rate ETB/USD, eop||20.20||21.18||22.20||23.30||24.50|
|Budget balance, % of GDP||-2.6||-2.7||-3.1||-3.1||-3.0|
|Current account balance, % of GDP||-7.2||-10.5||-12.2||-11.8||-11.1|
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