Growth and Current Account Deficit in Ethiopia: Challenges and Opportunities in a Growing Economy

Abstract

Ethiopia’s economy has continued growing and the major drivers of growth have been the services and agriculture sectors. However in recent years, the role of the industry sector is improving. Of the total growth, about 50 percent was contributed by the service sector while the contribution of the industry sector was about 39 percent in 2015/16. The high expenditure of public investment has worsened the incidence of inflation. Yet resources have not been efficiently allocated as evidenced by low scores of macroeconomic management rating and resource allocation indices. The widening current account deficit has made external financing necessary of which external borrowing has been the main one. External debt burden measured by ratio of stock of external debt to GNI has reached to 33 percent and external debt services to export ratio has been still higher than other countries. Ethiopian currency, the birr, has appreciated and affected export earnings by increasing the anti-export bias. The poor logistics and port infrastructures have also made export costly and adversely affected the export sector. Besides services export became negative due to increasing payments on debt services and payments on services being performed by foreigners in the domestic economic activities such as construction sectors.