Ethiopia

Balance of Payments and Foreign Assistance

Ethiopia has experienced chronic balance of payments difficulties since l953, with the exception of a few years. The major factor in the deteriorating balance of payments was the worsening situation of merchandise trade. The trade deficit that existed during the imperial years continued to grow after the revolution, despite the introduction of import controls. Since EFY l981/82, the value of merchandise imports has been roughly double the value of exports (see table 15, below).

Since l974 there has been low growth in the overall volume and value of exports. Coffee, Ethiopia’s principal export, accounted for about 60 percent of total merchandise exports, although this level fluctuated in the 1980s. Coffee exports reached an all-time high of 98,000 tons in EFY l983/84 but dropped to 73,000 tons in EFY l987/88. Similarly, coffee receipts declined as the world price of coffee plummeted. The share of noncoffee exports has not shown any significant change. Exports of oilseeds and pulses have declined since imperial times. Industrial exports consistently contributed only about 8 percent of the total value of merchandise exports. In contrast to the slow increase in the volume and value of exports, imports grew by nearly 7 percent during the decade ending in EFY l988/89. This trend reflected Ethiopia’s growing dependence on imports and the decline of foreign-financed investment and domestic savings. A high growth rate in import prices accompanied the high growth rate in imports. The result of these deteriorating terms of trade was a severe trade balance problem.

To finance its trade deficit, the government has depended on foreign aid. These import finance funds were in addition to the large volume of development project aid and commodity assistance the international community has provided to Ethiopia since the end of World War II. The volume of official development assistance jumped from US$l34 million in l975 to US$212 million in 1980 and to US$635 million in l987. Most external financial assistance came from Western nations. By the late 1980s, Ethiopia was the principal African recipient of concessionary funding and the largest recipient of EEC aid. In l988 Ethiopia received US$l4l million from the EEC under the provisions of the Lomé Convention (see Glossary). An additional US$230 million was later allocated under the Lomé Convention. Bilateral assistance, mainly from European countries, also increased in the late l980s. World Bank lending for various projects covering agriculture, education, housing, road construction, and power development reached US$400 to US$500 million by l988. Despite this aid, however, Ethiopia still received the smallest amount of aid per capita of all developing countries. The 1987 per capita aid level was US$14, compared with a US$23 group average for all developing countries.

Reliance on foreign aid has created economic problems for Addis Ababa. In 1987 Ethiopia’s total external debt amounted to US$2.6 billion, of which US$2.4 billion was long-term debt (excluding military debt). Addis Ababa owed more than one-third of the total to multinational agencies and the remainder to bilateral creditors. Economists estimated the EFY 1986/87 cost of servicing this long-term debt to be 28.4 percent of export earnings and projected the figure to rise to 40 percent of export earnings by l990.

Table 15. Balance of Payments, Selected Ethiopian Fiscal Years, 1980-81 to 1988-891

(in millions of United States dollars)
1980-81 1984-85 1985-86 1986- 87 1987-88 1988-89
Exports 554.1 548.9 662.2 616.1 629.2 735.0
Imports 770.5 962.2 1,192.0 1,217.0 1,259.0 1,345.5
Trade balance -216.4 -413.3 -529.8 -600.9 -629.8 -610.5
Factor services (net) -7.1 -33.0 -28.8 - 37.0 -63.0 - 94.2
Private transfers (net) 24.7 144.9 209.4 162.5 182.6 195.6
Official transfers (net)2 59.8 298.3 293.2 211.8 121.7 132.0
Current account balance - 139.0 -3.1 -56.0 -263.6 -388.5 -377.1
Private loans (net)3 0.0 0.0 0.0 0.0 0.0 0.0
Public loans (net)3 161.6 162.3 277.2 181.3 260.4 280.7
Short-term capital (net) -6.0 42.3 -12.8 9.7 9.7 0.0
Capital account balance 16.6 201.5 208.4 - 72.6 -118.4 - 96.4
Errors and omissions 108.9 153.9 43.3 - 52.7 71.3 - 123.6
Overall balance 125.5 355.4 251.7 - 125.3 -47.1 - 220.0
Change in net reserves (-means increase) 59.2 -47.6 - 165.2 19.9 189.7 -27.2

1 For explanation of the Ethiopian fiscal year–see Glossary.
2 Excludes technical assistance and similar transfers recorded in government budget.
3 Includes medium- and long-term loans.

Source: Based on information from National Bank of Ethiopia, Addis Ababa, various publications.

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