Inflation will slow Ethiopia growth: IMF

The International Monetary Fund Thursday said rising inflation in Ethiopia will slow down economic growt

h, which the government had projected will hit double figures during the 2011/12 financial year.

In a report, the IMF said the economy was now expected to grow by between 6 and 7 percent.


The East African country last year launched a five year Growth and Transformation Plan (GTP) that sought to achieve 12 percent annual economic growth.


But the IMF said the strategic plan was "very ambitious" in view of the rising inflation.


"High and rising inflation and entrenched negative real interest rates also threaten Ethiopia's macroeconomic stability" the IMF said.


"Ethiopia's goal to reduce inflation to less than 10 percent, from 40.1 percent in September, won't be easily achievable mainly because the central bank's monetary policy is unsuitable to tackle rising prices," said the IMF in its report.


"Single digit-inflation projections in the plan appear unrealistic as long as there is a loose monetary policy and a heavy dependence on public-sector financing on bank credit continues."


Under the strategic plan, the Ethiopia government wants to increase crop production, boost infrastructure and improve electricity generation to meet its growth goals.


The government is undertaking multi billion hydro electric projects along the Nile River, which will see the country becoming one of the major exporters of electricity.


Ethiopia is already exporting electricity to neighbouring Djibouti and supplies to Sudan and Kenya will start soon.


Meanwhile, officially opening the New Year session of the Ethiopian parliament President Girma Woldegirgisse early this week said government was working hard to reduce inflation to single digit figures.


He said government will stop borrowing money from the central bank starting this year.


Woldegirgisse said the borrowings were aggravating inflation, which had reached 40 per cent in September.
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