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

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Summary of Policy Frameworks between the Government and the IFIs - First phase of structural and economic reform program…..1992/3 - 1994/5 o Economic stabilization o Financial, public enterprises and civil service reforms o Promoting private sector and export o Liberalizing the economy & reducing the role of the public sector 6.6 percent growth rate was achieved 8.2 percent inflation - Second phase of economic policy reform……….1994/5 - 1996/7 o ADLI long term development strategy o Rehabilitation and reconstruction o Liberal external trade and foreign exchange policies o Improving competitiveness of industry & agriculture 5.6 percent growth rate was achieved - Three year ESAF (Enhanced Structural Adjustment Facility) arrangement with the IMF………………………... Oct. 1996 - Third Phase of economic reform program…………… 1996/7 - 1998/9 o Poverty reduction through broad based growth o Financial stability & further deregulation o Rapid pace of structural reforms o Strengthening human resource base o Rebuilding the environment and physical infrastructure - Second Annual ESAF arrangement ……. ……………Oct. 1998 - Poverty Reduction Strategy Paper……………………Nov. 1999 - Fourth phase of economic reform……………….1998/9 - 2000/1 o Accelerated & equitable economic growth o Strengthening the legal & regulatory framework o Fostering Ethiopia's integration with International economy o Capacity building in public and private sectors - Three-year PRGF (Poverty Reduction and Growth Facility) ……………………………………………….…March 22, 2001 - Second Annual economic and financial program… Oct. 2001 - September 2002 - WB's Poverty Reduction Support Credit (PRSC)………Sept. 2003 Moreover, recent macro economic developments in Ethiopia have been adversely affected by a severe drought in 2002/03, the worst to hit Ethiopia since 1984/85. Real GDP in 2002/03 is estimated to have declined by -3.8%, largely because of a fall in the cereals harvest. Agricultural production is estimated to have fallen by 12% compared to the previous year’s production, which was itself already slightly down from the bumper harvest of 2000/01. Poor economic performance is witnessed in spite of public spending in Ethiopia that has increased substantially in the past 5 years, by 80 percent in nominal terms since 1997/98 3 . This represents an increase from 24 percent of GDP in 1997/98 to 35 percent in 2002/03. The increase was driven at first by higher military spending during the war years (1998- 2000). Defence spending has since declined, but spending in other areas has been increased by a corresponding amount, leaving total spending at the new, substantially 3 In the low-inflation environment of recent years there is not much difference between real and nominal. 28
higher, plateau level. The large increase in public spending was initially financed by increased domestic borrowing in 1999/2000; but since 2001 it has been sustained by substantially increased donor inflows (WB, 2004: PER). Note also that the level of development aid has doubled, from an average of about $400- 500 million p.a. in the mid 1990s. This is due to two factors: the return of bilateral grant donors following the end of the border conflict, and the introduction of budget support in the form of grants from the EU and the re-introduction of quick-disbursing policy-based credits from IDA and the African Development Bank. Aid finances about 37 % of total public expenditure. Nonetheless, the absolute level of assistance is low relative to other low-income countries (at about US$ 16 per capita excluding emergency relief, compared to, for example, about $33 per capita for Burkino Faso, Rwanda, or Ghana) (World Bank, PER). Although the level of debt has been reduced in recent years due to debt cancellation through the Paris club and 80 percent cancellation of the debt owed to the former Soviet Union, the debt burden on Ethiopia is still very high. Ethiopia’s debt as proportion of its foreign exchange earning capacity is around 940 percent. The proportion with its GDP also reaches 150 percent. Ethiopia undoubtedly qualifies to the HIPC initiative and has long reached the decision and completion points as a result of which it has obtained substantial debt relief. Yet, Ethiopia continues to pay around $325 million to service its debt every year. The high debt burden in turn discourages the flow of foreign direct investment into the country. Although there is an effort to resolve some of the existing impediments and boost nontraditional exports, mainly in horticulture sector, through public private partnership, it is also true that the country does not have much to trade with. This is better demonstrated by the fact that the country during the past three years managed to tap less than one million dollars from the African Growth and Opportunity Act (AGOA) trade initiative offered by the U.S. government. On the other hand, some African countries on average gain 50 million dollars. Lesotho is one mentioned often as one of the success stories in taking advantage of AGOA exporting 300 million dollars worth of apparel and other goods this year alone, while South Africa attributed the creation of 90,000 new jobs to the initiative. 7. The way forward for Ethiopia The responsibility for sustainable development at the national level should first and foremost lie with the government and civil society in the country. Sustainable improvement in the people’s quality of life can only come from within through strong willingness and desire to develop. Favorable economic environment and fair conditions of competition and trade will make a country’s efforts to that end easier, but external donors and players can only support and facilitate sustainable development - they cannot and should not attempt to replace a country’s own endeavors. 29
Page 1 and 2: EXTERNAL INFLUENCE IN THE MAKING OF
Page 3 and 4: Hence, developing countries are dou
Page 5 and 6: other goals may include advancing t
Page 7 and 8: Since 1991, Ethiopia mainly followe
Page 9 and 10: WIDER (2004), total official develo
Page 11 and 12: The end of the Cold War removed the
Page 13 and 14: Aid (grant) Data on aid flows is in
Page 15 and 16: FDI flow to Ethiopia Year FDI Inflo
Page 17 and 18: 4. Ethiopia's Dependence on Aid Eth
Page 19 and 20: Source of Aid Ethiopia receives a f
Page 21 and 22: Dependence on Aid could stifle inte
Page 23 and 24: Aid conditionalities Aid is expecte
Page 25 and 26: South conflict, but a fundamental s
Page 27: such as the World Bank and Internat
Page 31 and 32: Conclusion Ethiopia has been quite
Page 33: References Abebe Taddesse, (2004):

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