Country Report Ethiopia July 2008

Outlook for 2008-09

• The Economist Intelligence Unit expects the ruling Ethiopian People's Revolutionary Democratic Front (EPRDF) to remain firmly in power over the forecast period.
• Following the peaceful completion of by-elections in April, we expect the political situation largely to normalise as all parties begin to regroup and plan for the next general election, due in 2010.
• Relations with Eritrea and Ethiopia's involvement in Somalia will continue to dominate the foreign policy agenda throughout the forecast period and tensions in the region will remain high.
• Sustained growth in agriculture, horticulture and services will keep real GDP growth robust, at 9% in 2008 and 8% in 2009, supported by healthy inflows of donor aid and foreign direct investment.
• Inflation will remain high in 2008, averaging 28%, reflecting rising food and oil prices. Monetary tightening and lower food prices should bring the rate down to 15% in 2009.
• The current-account deficit is forecast to widen to 6.6% of GDP in 2008 and 7% of GDP in 2009, as the trade gap offsets gains on the invisibles account.

Monthly review

• The new opposition party, Unity for Democracy and Justice (UDJ), elected Birtukan Mideksa as its new chairperson on June 17th.
• The Ethiopian government has been accused by US-based NGO, Human Rights Watch (HRW), of conducting a campaign of intimidation and violence against civilians in the Ogaden region.
• The budget for fiscal year 2008/09 (starting July 8th) was presented to parliament in June. It proposed a sharp rise in spending and revenue collection with a targeted budget deficit of 3.4% of GDP.
• The government is proposing to reform the rules governing the National Bank of Ethiopia (NBE, the central bank) and to create a unified revenue authority.
• In mid-June the government issued an emergency appeal for US$325m worth of food and non-food aid, to avoid serious famine in some regions.
• Inflation reached a new peak of 38.1% year on year in April, driven by a 43.7% increase in food prices.
• Ethiopia's current-account deficit almost halved in 2007 to US$864m (about 4.2% of GDP), according to the latest data from the NBE, owing mainly to the strength of current transfers, both private and official.