17 March 2013

Ethiopia: Govt Can No Longer Have the Economic Cake, Eat It Too

The many representatives of the largely Western donor agencies based in the busy capital of Ethiopia, a donor darling, used to enjoy the analytical rigour of the late Prime Minister Meles Zenawi. His understanding of even the latest buzzwords of the circle that seems to cherish the creation of a new one, each day, was highly praised.

As much as he was able to get their ideas right, he was able to play his cards very well too, in all the stages that brought his administration and the donors closer together. Yet, there is one aspect, typical of his style, that the donors used to detest - ideological steadfastness.

His firm affiliation with the Developmental State ideology, largely crafted by him, used to make their regular meetings all the more melodramatic. Whatever was proposed by the donors, which invest millions of dollars into the development agenda of the nation, was often construed by Meles as a neo-liberal arm twisting act that was proven wrong throughout the Development Decades -1941 and 1989 - and most vividly so during the Structural Adjustment Program (SAP) of the 1970s and 1980s. It was especially so with regards to issues of equity, governance, public participation and human rights.

No matter how blunt Meles could be, however, the donors were positive in that his stances were predictable. And so were the tactics and approaches of his administration.

Indeed, predictability is an essential asset in the development policy sphere, wherein money is attached with verifiable outcomes. This does not mean that aid and policy predictability are directly proportional. It rather means that aid could effectively see its right place under policy predictability.

It was such a benefit that the donor community tapped from the increasing articulateness of Meles. And that is rightly what it seems to have missed with his unfortunate death.

Even then, it might be naive to say that the donor community was unable to see the opportunity that the death of the chief drafter of the Developmental State theory would bring to it. A showcase to the naivety of such an idea was visible at the latest meeting of government officials and chief priests of the community.

The meeting, called to review the annual progress report (APR) of the overstretched Growth & Transformation Plan (GTP), for the fiscal years 2011/12, rightly showed the shift in both camps after the death of Meles. Whereas the largely apolitical donors were blunt enough to pinpoint the failings of the government, to the extent that they even cited the confusing line between political loyalty and competence in the different tiers of the government, government officials were seen trying to be as accommodating as they have ever been.

It looked like they had all come out of their respective shells. A donor community that had been struggling for a long time to be politically correct, seems to have become forceful enough to speak about the structural problems of the very system it supports. And with the realisation that confrontation serves no one, officials of the incumbent administration, led by Meles' handpicked stand-in, Hailemariam Desalegn, have developed the courage to accept their failings.

In fact, the latest report has rightly shown the imbalances within the economy, which the EPRD Fites are entrusted to oversee until 2014/15. It has also identified the incongruence between the plan and the achievements.

Although the plan, for instance, set out to achieve an average gross domestic product (GDP) growth rate of 11.2pc in the last two years, the achievement was less than even 10pc. Aggregate price index, which was projected to grow at a single digit rate, has in fact been in the double digits, with its average annual growth rate being 33.7pc in 2011/12.

Risks also exist on the resource management front. Aggregate government expenditure, largely consumed by capital projects, stood at 124.4 billion Br, in 2011/12, whereas the total revenue of the government was lagging behind, at 85.6 billion Br. No doubt that such an incongruence would have a direct inflationary impact on the economy.

It is not only from the domestic side that the risks arise. External resources, derived from loans and grants, bring their own share of risks to the sphere. Performances within external grant mobilisation are largely less than 62pc. External loans, which have a multiplier effect on total economic risks, if not denominated with a rise in productivity, has increased to 2.19 billion dollars; growing at an annual rate of more than 100pc.

Lags in project implementation in the infrastructure sector, as could be signified by the dismaying 2.1pc performance in power generation, and problems of quality surrounding education and health care provision, are other fronts on which the plan is being aggressively challenged. Even improvements in road density, an all the more popular numeric target for its dramatic rise over the past nine years, remain marginal.

Surely, such an achievement is something that government officials could not be happy about. Had it not been for their latest approach of being accommodative, the achievement would certainly have been indefensible.

It is all to do with the ambition that the EPRD Fites had at the outset. As much as they overestimated the productive capacity of the economy, they overstretched the plan beyond its disposable resource base. They turned a deaf ear to all the voices that tried to identify the weak links of the plan and suggest alternatives. All voices that stood against their ambition were tagged as unhelpful neo-liberal rags.

With two years past, however, the ambitious plan has been proved to have flaws. And, largely, the imbalances arise from its overestimation.

But, there still is a chance to align the estimation with reality. It is no longer possible for the EPRD Fites to have the economic cake and eat it too. They ought to choose one.

Indeed, it is better to have the economic cake than eat it, at this point in time. After all, a cake that could thrive through the rough and tough times could grow to eventually sustain as many people as planned.

Sustaining the economic cake, however, calls for rectifying the imbalances of the economy. This could rightly be done through a proper review of the planned targets.

Reviewing the plan in line with domestic and global economic realities is, by far, the wisest step the government could take, in order to avoid the negative impacts of the structural economic imbalances. It certainly is rational to settle for reasonable targets of inflation, domestic resource generation, external resource mobilisation and debt stock than risk the erosion of hard-earned economic benefits, such as reduction in poverty head count.

Doing so rightly entails displaying the right mix of political will and analytical rigour. There is a lot that the EPRD Fites could learn from the approaches of Meles, on both these fronts, as much as capitalising from the shifts in approaches of their multiple donors. At stake for them is, thus, to learn from the opportunities and adjust themselves and their plan to the economic realities on the ground.

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