Ethiopia's Macroeconomic variables

1. Ethiopia's Macroeconomic variables Prepared and presented By: Temesgen Kasahun (MEP09033) Gebreyohanes gebreselasie (MEP09046) Yonas Abrha (MEP09047) Teshowan Dorje

2. BACKGROUND OF ETHIOPIA Ethiopia, in the Horn of Africa, is one of the most ancient countries in the world. Federal Democratic Republic of Ethiopia The capital is Addis Ababa (New Flower). Independent country since ancient times Amharic is the official language Population size 85 Million 2

3. Ethiopian dynasty traces its roots to the 10th century BC. • Has with its own alphabet. • Has its own time system and unique calendar, seven to eight years behind the Gregorian Calendar. • One of the largest number of UNESCOWorld Heritage Sites • around 80 different ethnic groups

4. Religions • still has an Ortodox-christian majority, • A third of the population is Muslim, is the site of the first hijra in Islamic history at Negash. • A substantial population of Ethiopian Jews resided in Ethiopia.

5. Geography and resources • Size: 1,127,127 square kilometers. • Natural Resources: reserves of gold, platinum, copper, potash, • Natural gas. • Extensive hydropower potential • Home of many flora and fauna unique to Ethiopia

6. Macroeconomic indicators • In this presentation we will address the following major macroeconomic indicators: • GDP • CPI Measurement • Unemployment trend • Money supply Growth • Export-Import and Trade deficit • Government revenue and expenditure {budget deficit/surplus}

7. Ethiopia's Macroeconomic indicators

8. GDP Growth contd…

9. GDP Growth contd… • GDP is dramatically decreased starting from 2000/01 to 2001/02 because of decline in agricultural sector. • The boost of GDP in the year of 2007/08 is because of agricultural output is improved productivity through better use of modern inputs ,favorable weather conditions.

10. CPI Measurement in Ethiopia • The Ethiopian CPI is based on fixed items consumed in the base year and it is updated over time depending on changes in consumption patterns of the society. • The Ethiopian CPI revised every five years and it takes into consideration the following issues: • Revision of index compilation formula, if necessary • Selection of reference (base) year • Fixing the selection of basket of commodities (based on Consumption Structure)

11. CPI contd…

12. CPI contd… • food inflation increased starting from the 3rd quarter of 2007/08 to the first quarter of 2008/09 caused by price change of cereals ,vegetables and fruits and potatoes etc. • Non food inflation decline relatively by lower rate of inflation in house rents , construction materials, water ,fuel and power and transportation

13. Urban Vs Rural Unemployement Source: Central Statistics Agency (CSA)

14. Unemployement contd… • The above data indicates that the rate of unemployment more than doubled between each period. • The urban unemployment rate roses sharply between 1984 to 1994 • In contrast the unemployment rate in rural areas was only 0.7% in 1984, 1.2% in 1994, and 7.2% in 1999.

15. Money Supply

16. Money Supply contd… • The broad money is increases because: • increase credit to central government • increase credit to non-government sector • deterioration of Net foreign Asset (NFA) from year to Year.

17. Export- Import and Trade deficit Trends from 1997-2008 Source: Adapted from Central Statistical Authority of Ethiopia, 2009

18. Export-Import trade deficit contd… • Less openness of the economy such as liberalized trade making the country less attractive to foreign investment. • Lower stage of development thus focusing on imported capital items , therefore, run current account deficits • Over-valued Real Exchange Rate • Dependency on primary commodity exports and capital goods imports, where there is terms of trade bias against the former

19. Government Fiscal Sustainability factors as a percentage of GDP 2001-2008

20. Contd. • Gov Revenue//GDP= Ratio of General Government Revenue to • Expenditure to GDP • Domestic Debt/GDP=Ratio of Domestic Debt to GDP GOV Expenditure/GDP=Ratio of General Government • BD/GDP =Primary Budget Deficit • Total revenue (excluding grants) reached Birr 29.8 billion whose ratio to GDP declined from 12.7 to 12.1 percent during the same period.   • The primary deficit, which shows fiscal stance of the government and measured as a deficit excluding interest payments and capital revenue like privatization proceeds and income property sales, narrowed to 2.1 percent of GDP from 3.0 percent • The ratio of domestic debt to GDP, which has been declining for the last three consecutive years, dropped further to 15.6 percent of GDP.

21. Summery; Key Indicators of Government Expenditure 2001-2008 Source: ministry of finance and Economic Development, 2009

22. Governement Expenditure contd… • Large capital expenditure in socio economic infrastructure • More fertilizer and oil imports • Growing of investment related imports widening the trade deficit • Higher schedule repayment of foreign debt leading to the depletion of already low international reserves

23. Conclusion Remark • government spending should target on economic infrastructures • Encourage and institute open market operations such as bond and stock which almost non-existance presently • The country should assesses its exchange rate policy and then urge to the devaluation of currency and market liberalization

24. Remark contd.. • The country needs to promote Export led economic development. • Invite Foerign direct investors and built its institutional capacity

25. Thank You!