IMF Raises Ethiopia Growth Forecast to 7% for Next Two Years

The International Monetary Fund raised its growth forecasts for Ethiopia over the next two years and said inflation in Africa’s second-most populous nation may slow to less than 10 percent next year.

The economy may expand 7 percent in the fiscal year to July 7, compared with an April estimate of 5 percent, the Washington-based lender said in an e-mailed statement today. Growth in the 2012-13 fiscal year may be 6.5 percent, against a prior forecast of 5.5 percent, the bank’s representative to Ethiopia, Jan Mikkelsen, said in an e-mailed response to questions today.

“A similar growth rate and single-digit inflation are achievable in 2012-13 if implementation of tight monetary and fiscal policies is maintained,” the IMF said in the statement.

Ethiopia’s economy grew 7.5 percent last year and expansion averaged 10.5 percent annually in the five years to July 2010, according to the IMF. Inflation that was 25.5 percent in May is expected to slow to 22 percent by the end of the fiscal year, the IMF said.

Expanding economic activity has been supported by “robust export growth and public enterprise investments,” it said.

The IMF recommended the government raise interest rates on debt and bank deposits, which now range from 3 percent to 5 percent, to tackle inflation as well as encourage savings and Treasury bills sales.

“I think it’s not really the right time to raise interest rates,” State Minister of Finance Abraham Tekeste said. “It will adversely affect investment and economic growth.”

A government focus on tackling inflation will help achieve positive interest rates, he said in a phone interview today from the capital, Addis Ababa, today.