Ethiopia Needs to Curb Spending as `Imbalances' Grow - IMF Report

Posted 23 July 2008 @ 01:35 am EET     Print     Reprint     E-Mail     Comments

Ethiopia's government needs to curb spending to bring inflation under control following signs of ``growing macroeconomic imbalances,'' the International Monetary Fund said.

``Forceful policy tightening'' is needed to slow inflation and to ``ensure that inflation expectations do not become ingrained,'' the Washington-based lender said on its Web site.

Lower government spending will help to cut domestic demand, which has exceeded production in the economy and added to price pressures. Inflation in Ethiopia, Africa's biggest coffee producer, probably averaged 22 percent in the fiscal year to July 7, up from 16 percent in the previous 12 months, the IMF said.

``Recent signs of growing macroeconomic imbalances manifested as higher inflation and a weakening of the balance of payments suggest that demand is running ahead of capacity expansion,'' the IMF said.

Record oil prices have boosted imports, cutting foreign currency reserves that now cover about 1.5 months of import requirements, compared with an average of 2.1 months last year, the IMF said.

Economic growth in the east African nation probably slowed to 8.4 percent in the 2008 fiscal year from 11.4 percent in the previous 12 months, the IMF said. With a population of about 77 million, Ethiopia earns almost half its income from agriculture.