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The Great Recession and Developing Countries
2
1
2
5
1
2 1 –1
7
2
5
6
1
1
6
5
5
FY 06
4
3 1 1
1
7
7
1
5
1 3
4
1
2 2
industry
services
(P )
(E)
FY 10
FY 09
FY 08
FY 07
FY
FY 02
FY 01
FY 00
FY 99
agriculture
04
–5
–6
FY 03
1 1 0
1
2
5
FY 05
3 2
FY 98
14 12 10 8 6 4 2 0 –2 –4 –6 –8
FY 97
contribution to aggregate supply, %
Figure 5.7. Sectoral Contribution to Ethiopia’s Growth Rate
overall GDP
Source: World Bank Live Database 2009; National Bank of Ethiopia; MoFED, GoE; IMF. Note: E = estimate; P = projection.
crisis, the supply side showed practically no change except for a small decline in the contribution of agriculture. Agriculture growth is largely a function of weather and is unrelated to global events. In the second year of the crisis, the manufacturing sector appears to have gained strength, boosted by the devaluation of the birr.
Explaining the Rapid Growth of the Precrisis Boom Period The robust growth in private consumption and public investment in the precrisis boom period was financed largely by a rapid expansion of domestic credit and foreign savings. According to an IMF staff report (2008), broad money growth has remained high, driven mainly by credit expansion to the public sector—particularly to public enterprises.9 Since FY05, domestic credit to public enterprises has grown at an annual average rate of 65 percent (figure 5.8a). This surge in credit has been used primarily to build and upgrade the much-needed infrastructure network of the country, including roads, hydropower dams, and the telecom system. At the same time, a booming economy encouraged the Ethiopian diaspora to send a lot more money home; private transfers