This study sought to investigate the channels through which the
financial crisis has transmitted its effects in Ethiopia, the effects of
the crisis on growth and development, policy responses that have been
put in place and whether the country is well placed to respond
effectively to crisis in the future.
A mix of both secondary and primary data was used to assess the impact.
To see the level, direction and trend of the impact of the crisis, we
used before and after comparisons. Among other things, the study
identified foreign direct investment (FDI), trade, remittances and aid
as channels through which the crisis transmitted its effects. After the
crisis hit, it was observed that FDI, remittances, export volumes and
export prices declined. The decline in exports and remittances led the
government to ration foreign exchange, with a resultant decline in
imports. Accordingly, gross domestic investment declined from about 24%
of GDP in the past four years to 20.3% in 2008/09. Tax revenue and
government expenditure also declined in 2008/09. With regard to impacts
on imports, tax revenue and government expenditure, a decline in overall
growth would be expected. Despite the Ethiopian government estimating
real growth of GDP in 2008/09 at 11.2%, overall growth is estimated to
have been as low as 7.5% (IMF, 2009b) and 6% (World Bank, 2009).
This estimated decline in growth and the observed decline in public
expenditure and private consumption resulting from the crisis are
expected to have increased incidence of poverty.
Alemu, G. Global Financial Crisis Discussion Series. Paper 16: Ethiopia Phase 2. ODI, London, UK (2010) 43 pp.
Global Financial Crisis Discussion Series. Paper 16: Ethiopia Phase 2