ADDIS ABABA - An export boom is likely to drive 10 percent annual economic growth in Ethiopia for the next few years, the finance minister said on Thursday, but added that the target was a minimum to tackle poverty.
"This year (2007/08) we project the annual economic growth to be about 10 percent," Finance Minister Sufian Ahmed told Reuters. "If a meaningful blow is to be made to poverty, the economy has to grow by a minimum 10 percent."
Exports have grown an average 25 percent in the agriculture-dependent economy over the last four years with economic growth averaging about 7 percent and reaching 9 percent in 2006.
"It's export-led growth," Sufian added.
"We think we can sustain at least 10 percent growth per annum for the next several years."
Despite its healthy economic figures, the Horn of Africa nation of 81 million people is still one of the world's poorest, ranking 170 out of 177 on the U.N. Human Development Index.
Sufian blamed "imported inflation" -- the rising cost of imported fuel, machinery and construction material -- for annualised inflation of about 16 percent.
Another factor pushing prices higher was farmers stockpiling their cash crops including sesame, oil and seeds, for sale in leaner times, he said.
"Studies show that farmers are starting to have some assets in their hands, starting to accumulate wealth -- this is unheard of in Ethiopia -- so they are in no hurry to bring their products to the market," he noted.
"It is good for farmers. It is good for the economy, but unfortunately the urban poor is being affected by this."
In a bid to combat higher prices, the government has introduced temporary subsidies for cooking oil and grain.
It hopes to reduce inflation to single digits in the 2007/08 fiscal year by offering seeds and fertiliser to coax farmers to produce more, while improving transport links and storage capacity, Sufian said.
He said the central bank had adopted various measures to ensure money supply was equal to economic growth, including raising reserve requirements for banks from 5 percent to 10 percent and increasing the deposit rate to 4 percent from 3 percent.
"On fiscal side, we tried to contain deficit financing at affordable levels. For this budget year, our domestic deficit financing is about 2.5 percent of the GDP," he said.
External funding in the form of project assistance accounted for 20-30 percent of Ethiopia's 2007/08 budget with less than 10 percent granted in direct budgetary support, Sufian said.
Many Western donors stopped direct budget aid, after disputed 2005 polls led to thousands of arrests in an opposition crackdown, instead channelling money through project assistance.
Sufian said Ethiopia was not pushing donors for a total resumption of direct budget support.
"We saw how unpredictable direct budgetary support is on both sides. We are comfortable with their assistance in form of project financing and protection of basic services," he said.
Ethiopia had started to address the problem of regulatory capacity but remained cautious about opening up the financial sector, Sufian said, adding that the country's stability was attractive to foreign investors.
The government was aware of the challenge to future economic expansion from a rapidly growing population. Sufian hoped that growth rate would fall below 2 percent in the next five years under a programme to encourage girls to stay in school and to provide family planning advice to more people.
