Country Report Ethiopia July 2009

Outlook for 2009-10

• The ruling Ethiopian People's Revolutionary Democratic Front (EPRDF) is expected to remain firmly in power over the forecast period.
• Political tensions will begin to rise during 2009, as all parties start to regroup and plan for the next general election, which is due in May 2010.
• Relations with Eritrea and insecurity 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 6.8% in fiscal year 2008/09 (ending July 7th) and 7% in 2009/10, supported by steady inflows of donor aid and investment.
• Inflation averaged 44.4% in 2008 owing to strong increases in food and oil prices during the year. Monetary tightening and lower food and oil prices should bring the rate down to 14% in 2009 and to 12% in 2010.
• The current-account deficit will remain stable at 7.8% of GDP in 2009, as falling imports are offset by lower private transfers. In 2010, as global demand edges up, the current-account deficit is expected to narrow to 6.9% of GDP.

Monthly review

• The prime minister, Meles Zenawi, reiterated in late June that he is considering stepping down, possibly even before the next election in May 2010, on the grounds that a new generation of leadership is required.
• In June the finance minister, Sufian Ahmed, unveiled a relatively cautious budget for the 2009/10 financial year (starting July 8th) based on a predicted deficit of about 1.5% of GDP (which is similar to the target in 2008/09).
• The final outcome for 2008/09 is likely to show a larger deficit than planned, as the economic slowdown caused a significant tax shortfall.
• The vital kiremt rains, which produce the main meher harvest (in the fourth quarter of the year), started as usual in June, but patchy precipitation in some areas means that the size of this year's harvest is in doubt.
• Another factor clouding the horizon is the emergence of locust swarms (originating in Somaliland) in seven districts, including locations that have never reported infestations in the past.
• The latest data from the International Telecommunications Union show that the number of mobile-phone subscribers continues to grow at a rapid pace, more than doubling in 2008 to 3.17m.
• Oil exploration is set to gather pace again in the highly prospective Ogaden region, but insecurity remains a serious deterrent.

Source: Country Report