Ethiopia, with a population of about 79.1 million, is the second most

Transcription

1 IDA at Work Ethiopia: Protecting the Most Vulnerable Ethiopia, with a population of about 79.1 million, is the second most populous country in Sub-Saharan Africa. One of the world s oldest continuous civilizations, Ethiopia is also one of the world s poorest. At US$220, Ethiopia s per capita income is much lower than the Sub-Sahara Africa (SSA) average. Since 1991, when the civil war ended, there has been significant progress in key human development indicators: Primary school enrollments have tripled, child mortality has almost been cut in half, and the number of people with access to clean water has more than doubled. More recently, poverty reduction has accelerated. The poverty headcount, which stood at 46 percent in 1995/96 and at 44 percent in 2000/01, fell to 39 percent in 2004/05. These gains, together with more recent moves to strengthen the fight against malaria, paint a picture of improved well-being in Ethiopia. But despite the progress in critical aspects of human development, Ethiopia is a long way from achieving some of the Millennium Development Goals (MDGs) by 2015, given the country s very low starting point. Country Indicators 1991 Most recent year GDP per capita (US$) (2008) Annual average inflation (%) % May 2009 External debt (% of GDP) (2008) Poverty incidence (%) 46 (1996) 39 (2005) Net primary school enrollment rate (% of age group) (2008) Under-5 child mortality (per 1,000 children) 204 (1990) 119 (2007) Access to clean water (% of population) 19 (1990) 52 (2007) Road network (Km) 19,017 (1991) 44,359 (2008) Population (millions) (2007) Sources: Government of Ethiopia, Plan for Accelerated and Sustained Development to End Poverty (PASDEP); World Bank, World Development Indicators.

2 COUNTRY ACHIEVEMENTS Over the last 15 years, Ethiopia has experiencing a steady economic growth, although this performance has been accompanied by growing economic imbalances. For the last four years, Ethiopia s economy has grown at an annual rate of over 11 percent an important achievement for a country whose per capita income in 2002/03 was the same as in 1972/73. The average Ethiopian now has a level of income that is about 43 percent higher than the level prevailing at the end of the 1990s. Yet given the extremely low initial per capita income, the country remains one of the poorest in the world, underscoring the urgency of accelerated growth and development on a sustained basis. Moreover, the economy faces several risks for example double-digit inflation that suggest that the understandable optimism over recent growth should be moderated by caution over the potential threats to sustained economic expansion. Ethiopia s growth performance and the considerable development gains from 2003 to 2007 came under threat in 2008 with the emergence of the twin macroeconomic challenges of high domestic inflation and a difficult balance of payments situation. These challenges were made worse by high fuel and food prices. While these threats have moderated in recent months, substantial risks remain. The annual average inflation, after reaching a historical peak of 64 percent in July 2008, had fallen to percent in June At the same time, foreign exchange reserves have risen from barely four week of imports cover in October 2008 (US$ 764m) to the equivalent of six weeks of imports in May 2009 (US$ 1.32 billion). The Government of Ethiopia has undertaken a number of actions in recent months to address its macroeconomic problems. These include tightening fiscal policy and reducing government s domestic borrowing, mitigating the impact of high food prices on the poor, reducing the domestic borrowing of public enterprises, tightening money supply, and gradually depreciating the local currency. Real GDP per Capita at 1999/00 Constant Price (Ethiopian Birr) 1, ,450 1,350 1,250 1,150 1, Real GDP per capita Trend

3 Ethiopia s macro situation is expected to remain tenuous, especially as the global economic crisis continues to make itself felt. The economy is likely to slow down in the coming years, though the growth rate will remain very respectable from a global perspective. The IMF projects the real GDP growth rate to decrease from 11.2 percent in 2007/08 to 7.5 percent in 2008/09, though the Government maintains that the slowdown should be smaller. The 12-month end-ofperiod inflation rate fell from 14.2 percent in May to 2.7 percent in June The current account deficit (excluding official transfers) is expected to remain around percent of GDP during 2009/10. Better prospects for Ethiopians Since the early 1990s, the primary school enrollment rate has nearly quadrupled, child mortality has almost been cut in half, and the number of people with access to clean water has more than doubled. These gains, together with more recent moves to strengthen the fight against malaria, paint a picture of improved well-being for Ethiopia s children, who nonetheless represent a highly vulnerable segment of society. They also set the stage for broader poverty reduction and growth. The progress can be largely attributed to prudent economic management; decentralized government and a more market-oriented economy; and investments in programs that directly benefit poor households. All three of these contributing factors constitute areas strongly supported by Ethiopia s international partners. Notwithstanding the progress in critical aspects of human development, Ethiopia is still a long way from achieving its Millennium Development Goals (MDGs) by 2015, given the country s very low starting point, and the toll taken by Ethiopia s persistent and recurring droughts. IDA CONTRIBUTIONS The International Development Association is Ethiopia s largest provider of official development assistance: it has committed US$6.7 billion to 59 projects in Ethiopia since 1991, most notably for the protection of basic services, productive safety nets, food security, and roads. Debt relief measures have also freed resources for programs that benefit the poor. IDA has worked to promote economic growth and address systemic poverty challenges across many sectors. Education. IDA s support for the education sector including budget support and the Protection of Basic Services program has helped Ethiopia expand access to primary education over the last nine years. Total primary enrollment went from 8.1 million students attending primary school in 2000/01 to 14 million in 2006/07. In just a few years, there has been a considerable reduction of the gender gap for primary schooling defined as the ratio of girls to boys from 0.65 in 2000 to 0.88 in The gross enrollment rate for secondary school (grades 9 10) stood at 36 percent in 2006/07, about double the level of Educational quality, as measured by completion rates, has also improved, but more slowly, and remains a major focus for the government, IDA and their partners. Roads. Ethiopia s development has been held back by a large infrastructure gap it has one of the lowest road densities in Africa. IDA 3

4 has invested about US$1 billion since 1991 to address that challenge. A road sector development project supported the formulation of Ethiopia s ten-year roads program; it helped establish a dedicated road fund for financing maintenance work and build capacity at many levels. Working in partnership with other donors including the EC, Germany, Japan, Nordic countries and the UK IDA helped increase both the size and quality of Ethiopia s road network. The network increased from under 20,000 km of roads in 1991 to over 44,000 km in Decentralization. Decentralization, first to the regional level in the 1990s, and now to the district (woreda) and sub-district (kebele) levels, is the centerpiece of Ethiopia s strategy to improve responsiveness and flexibility in service delivery, increase local participation, and democratize decision-making. IDA is providing capacity-building support and financial support to local governments that is enabling them to deliver better quality basic services (health, education, water supply, etc.) to more of their citizens. Private sector. After the change of governments in 1991, IDA helped Ethiopia shift from a state-controlled economy to one that encourages private sector growth and job creation. It helped the post-dergue government address an over-valued currency that stifled exports, reduced tariffs and taxes, and ended most price controls, thereby creating a space in which Ethiopian companies can play a natural role in generating income and creating jobs. Still, more needs to be done to improve the investment climate and improve business confidence. The Bank is also working with the government to accelerate privatization of public enterprises, strengthen competition policy, improve the financial system, and support firms in building new technical and business management skills. Regional cooperation. Historically, there has been a strong tension over water usage rights between upstream Nile riparians, such as Ethiopia, which contributes 85 percent of Nile waters, and downstream countries, such as Egypt, for which the river is the lifeblood of its economy. The Nile Basin Initiative (NBI) aims to foster cooperation among nations through which the Nile runs, and to find winwin opportunities for better management of the river. The success of the NBI so far in building cooperation among Nile countries has opened the possibility for Ethiopia to draw on the waters of the Nile in new ways, and on a larger scale. Goodwill on the Nile IDA has been the main international facilitator behind the Nile Basin Initiative. The Bank was invited to coordinate international support to Nile cooperation beginning in 1995, and since 1998, the Bank has been promoting dialogue, resolving disputes and supporting joint actions, with a major focus on changing hearts and minds over the shared usage of Nile waters. The Bank now coordinates the involvement of about 17 multilateral and bilateral development partners of the NBI. The Bank is currently helping to facilitate a Nile cooperative framework treaty that would establish principles and a permanent Nile River Commission a prerequisite for sustained cooperation, as well as for public/private financing of Nile investments. 4

5 Recently, IDA provided financing for the Tana & Beles Integrated Water Resources Development Project, which aims to lay the foundation needed to accelerate sustainable growth in the sub-basins by developing enabling institutions and facilitating investments for integrated planning, management, and development. This project will be critical not only for local beneficiaries and Ethiopia in general, but will also improve regional cooperation among Nile riparian countries. It seeks to develop a new paradigm of institutional modernization and convergence in managing precious water resources, while also stimulating sustainable development In the coming years, IDA plans to continue providing financing for investments in Ethiopia that build on the political openings achieved by NBI, in areas such as energy, irrigation, and water resources management. IDA s partnership with Ethiopia has aimed to support and protect vulnerable populations in periods of political uncertainty, drought, and even conflict. A strong presence through different crises Immediately following the end of the civil war in 1991, the Bank coordinated a US$650 million multi-donor program to begin the process of economic and social recovery, including the provision of medicines, rehabilitation of damaged infrastructure, and early steps toward a market economy. Bank analytical and capacity-building work contributed to the affordable construction of schools, community-driven development in pastoral areas, and helping former guerilla leaders assume responsibility for effectively managing government programs. The conflict with Eritrea prompted a number of donors to scale back development programs, but IDA stayed engaged continuing disbursements under existing projects, though not launching new operations and then mounted a significant program to stabilize and rehabilitate the economy once the war ended. IDA development assistance in the immediate post-conflict period (Fiscal Years ) totaled well over US$800 million four times more than the next largest donor. An IDAfunded demobilization project launched in December 2000 helped demobilize 148,000 soldiers, reintegrate veterans into civilian life and free government resources for medical services for disabled citizens. IDA moved quickly again during the severe drought to provide quick-disbursing assistance to stabilize the macro-economy, defend the government s human development expenditures, and prevent irreversible losses of assets among the affected population. After contested elections in 2005 were followed by public protests, mass arrests, and an increasingly polarized climate, the World Bank and other donors suspended direct budget support but agreed to press for improved governance, including greater civic participation, while protecting critical services in health, education, agriculture and access to safe water. IDA led an effort to protect basic services to the population through a program that channeled assistance directly to local governments. IDA financing of US$430 million for the Protection of Basic Services program lever- 5

6 aged over US$ 1 billion in financing, chiefly from the United Kingdom but also from the African Development Bank (AfDB), Austria, Canada, the European Commission, Ireland, and the Netherlands. During the 2008 food crisis, IDA mobilized resources rapidly and provided grants in the amount of US$275 million in support of the government s effort to address the food crisis. The funds were allocated under the Global Food Crisis Response Program (GFRP) to meet Ethiopia s immediate food needs and ensure its food security in the longer term. The program consisted of two projects: one helped finance cash and in-kind transfers to food insecure households in 2009; the other assisted the government s efforts to ensure availability of adequate supplies of fertilizers for the 2009 crop season in order to raise the likelihood of adequate agricultural production, leading to increased food security, reduced malnutrition, and lower food prices. Improving food security beyond chronic crises In a drive to establish greater food security in a country chronically subject to shortages, IDA helped design and fund a Productive Safety Nets Program (PNSP) that provides food, cash, and public works to vulnerable populations. The program, funded by a large consortium of donors, marks a break from traditional food aid to try to tackle some of the root problems at the source of food insecurity. The Productive Safety Net Program complements other ongoing projects focused on food security, pastoral community development, and emergency drought recovery. From Emergency Food to Cash Transfers Rather than distributing bags of wheat or oil cans, the program delivers cash-based aid that does not distort local food markets and mobilizes labor for productive civil works. A public works component pays citizens for performing jobs that rehabilitate damaged ecosystems, thus providing income while making land more capable of sustaining agriculture. Surveys show that communities covered by this program are less likely to sell assets to deal with droughts, and more likely to use healthcare facilities and keep their children in schools. PARTNERSHIPS Official Development Assistance (ODA) to Ethiopia has been increasing steadily since A large number of donors are active in Ethiopia, with 25 bilateral and multilateral donors averaging more than US$5 million per year in ODA from Both the government and a majority of international partners have been keen to proceed with the deepening of the harmonization process in the spirit of the Rome and Paris Declarations. The Bank, with UNDP and one bilateral donor, is one of the rotating co-chairs of the Development Assistance Group (DAG), the main forum for donor coordination in Ethiopia. Under the DAG, efforts are underway to make strong progress on the implementation of commitments in the Paris Declaration, including joint research (much of the Bank s major analytical work has already been prepared jointly with partners) and joint missions. Much of the collective effort is focused on furthering harmonization through a few major multi-donor programs and policy areas of importance. 6

7 The World Bank has taken the lead on developing a set of multi-donor instruments to reduce transactions costs, align support with the country s decentralized model, and enhance the predictability of aid. These instruments allow for large-scale leveraging of IDA support. Such approaches include: the Protection of Basic Services program; the Public Sector Capacity Building program; the Productive Safety Nets program; the Water Supply, Sanitation, and Hygiene Universal Access program and the Sustainable Land Management program. For more traditional projects, such as investments in roads, action plans are being implemented to harmonize implementation procedures (such as common environmental assessment procedures) with a focus on three priorities disbursement procedures and financial reporting, monitoring and evaluation, and procurement (starting with standard documents for goods, works, and consulting services for national competitive bidding). CHALLENGES AHEAD Ethiopia needs more money to achieve its development goals. The main challenges for Ethiopia are to continue the progress made in recent years toward the Millennium Development Goals (MDGs) and to address the causes of poverty among its population. Since fiscal deficits and taxation are already high, and the government is already devoting a very high share of its budget to pro-poor programs and investments, increased donor support is the only major option in the near term to finance the increased spending needed to meet these challenges. However, even if donor support is increased, using aid effectively will require Ethiopia to improve governance, empower local authorities, and become more accountable to its citizens. Improving governance to maximize aid effectiveness After dialogue within the country and with development partners, including the World Bank, the government committed to a series of governance reforms in its current poverty reduction strategy. These included: civil service reform and public sector capacitybuilding; financial management; human rights and conflict prevention; democratic representation; access to information; the justice system; decentralization; and civil society participation. The Bank is supporting the government in implementing these reforms through programs that seek to protect basic services and build capacity in the public sector. The Bank is taking a lead role in interventions to help strengthen key areas of economic governance such as building institutional capacity for decentralization, supporting private sector growth, and improving transparency and accountability. Scaling up assistance Ethiopia is a prime candidate for the scalingup of assistance because of the extreme poverty that afflicts segments of the society. But this is also true because the government s commitment and capacity to deliver on poverty-reduction programs is comparatively strong. By any estimation, massive external investment is required for Ethiopia to meet the MDGs. 7

8 Moreover, Ethiopia s per capita development assistance is well below (about half) the sub-saharan Africa average. It is estimated that for Ethiopia to have a realistic chance of achieving the MDGs, donor support would need to double from the current annual level of about US$30 per capita (OECD DAC, 2007) to about US$60 per capita by 2015, or about US$5 billion per year. July