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Ethiopia's post-socialist track record shows that the country has made a decisive break with its command economy in many, but not all, respects. Price controls have been largely dismantled, tax and tariff rates reduced, and the inflation rate kept low. The EPRDF Government has a strong sense of ownership of the reforms, and it is committed to several measures that go beyond stabilization and liberalization.

Berhanu Abegaz

Ethiopia managed to attract over US$17 billion in
official development assistance in 1980-97. This
average annual inflow of 16 percent of GDP is equally
divided between multilateral donors (IDA, AfDB, U.N.
and EU) and bilateral donors (mainly Scandinavia,
Italy, Germany and the U.S.). The country's onerous
external debt stood at US$10 billion in 1997, almost
equally divided between Russia (defense loans) and DAC
lenders.

Ethiopia's post-socialist track record shows that the
country has made a decisive break with its command
economy in many, but not all, respects. Price controls
have been largely dismantled, tax and tariff rates
reduced, and the inflation rate kept low. The EPRDF
Government has a strong sense of ownership of the
reforms, and it is committed to several measures that
go beyond stabilization and liberalization. In
response, well-coordinated donor assistance now
focuses on sector-wide investment programs in roads,
health and education. Important initiatives in energy
and food security are also in the pipeline. Foreign
aid has recently played a critical role in
implementing first-generation reforms, and in nudging
the Government to undertake deeper reforms regarding
parastatals, finance and trade than it was initially
willing to contemplate.

The remarkable spurt of economic growth after 1992 is,
however, under a constant threat of derailment as the
recent return of war and famine underscores. The
reasons are hardly elusive. First, the Government has
yet to institute an inclusive governance system that
empowers all fundamental interest groups. Second, it
is reluctant to undertake second-generation
institutional and policy reforms that would constitute
an irreversible break with a discredited past. These
include reprivatization of land and housing, more
vigorous banking and trade reforms, and an even-handed
competition policy. Third, an effective mechanism for
mobilizing private savings has yet to be devised in
order to raise the low investment rate and to reduce
aid dependency. A credible commitment to a
private-sector-led development strategy and the rule
of law is essential for ensuring durable social peace,
effectively absorbing additional resources from an
increasingly selective foreign aid regime, and
utilizing such aid as leverage for crowding-in foreign
private investment.

Download a pdf of the entire report:
http://www.worldbank.org/research/aid/africa/ethiopia2.pdf

Source:
http://www.worldbank.org/research/aid/africa/ethiopia2.html