external influence in the making of development ... - FES Ethiopia

$85 million. Although the amount varies slightly from year to year, HIPC relief will
average approximately ETB 800 million ($90 million) annually over coming years. This
is equivalent to about a 10% increase in foreign aid levels. While this represents only a
4% increase in total public expenditure, in absolute terms, if focused on priority
activities, the amount can be very useful.
How does this compare with some key aggregates?
• HIPC Relief: approximately ETB 0.8 billion annually.
• Total public spending: (2002/03): ETB 19.7 billion.
• Total foreign aid: approximately ETB 8.0 billion.
• Humanitarian relief: average ETB 2.2 billion.
• Recurrent Education spending: ETB 1.8 billion.
• Primary education recurrent budget: ETB 0.8 billion.
Source: DAG report
In terms of total public expenditure it represents only a 4 percent increase. Nonetheless it
is potentially very useful if focused on some key areas: it is, for example, about equal to
the entire current primary education budget. ETB 800 million would finance the
employment of over 110,000 additional teachers, entirely eliminating the teacher deficit
and restoring student-teacher ratios for much of the balance of the decade; or more than
adequately fund a full-scale population/family planning program, as well as a major
improvement in immunization coverage and maternal child health programs.
3.2 External Shocks
Ethiopia’s economy is highly vulnerable to external shocks such as export or oil price
sudden changes. It has been already mentioned that the first oil price shock that has
occurred in 1973 has, in fact, been the immediate cause for the change of government in
Ethiopia that has been seriously undermined by the famine that has occurred about the
same time. The oil price shock has probably undermined the government capacity to
effectively respond to the famine. More recently, the decline in coffee price has seriously
impacted on foreign exchange reserve of the country and the welfare of coffee producers.
Modeling the impact of shocks shows that public expenditure is largely insulated - partly
because the neither oil nor agricultural exports directly affect revenues very much, and
partly because the large subsistence sector (which is most affected by drought), has little
integration with the cash economy.
Although the Ethiopian economy is very small, it is, however, fairly open to the outside
world. The above discussions have also illuminated the fact that the resource flow into
the country is substantial and that it cannot be underestimated. As a result, the country is
susceptible to changes that occur at global level. This underpins the fact that Ethiopia
cannot remain unaffected by the current globalization process. It is imperative, therefore,
for the country to study in some depth the opportunities and challenges posed by the
current global order.
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