June 11, 2019 / 7:54 AM / 2 months ago

UPDATE 2-Ethiopia forecasts 9% growth, plans higher spending in 2019/2020

(Adds borrowing figures, background)

By Dawit Endeshaw

ADDIS ABABA, June 11 (Reuters) - Ethiopia’s economy is projected to grow by 9% in 2019/2020, finance minister Ahmed Shide told lawmakers on Tuesday as he presented plans to raise spending in one of Africa’s fastest-growing economies.

The data in Ethiopia’s draft budget provides an insight for investors keen to gain a foothold in Ethiopia, whose population makes it the continent’s second-largest market.

Ahmed proposed 386.9 billion birr ($13.48 billion) in government spending for 2019/2020, which if approved will be 12% higher than 2018/2019’s 346.9 billion birr figure.

Lawmakers from the ruling coalition, who dominate parliament, are expected to approve the plans in the next few weeks.

William Davison, a senior analyst at Brussels-based Crisis Group, said the growth targets were ambitious. The International Monetary Fund in April projected the country’s growth for 2019 at 7.7%.

“This projection appears to be based on factors such as positive investor sentiment amid a more pro-business regulatory environment, which the authorities clearly hope will counteract reduced spending on infrastructure, a recent key growth driver,” he told Reuters.

Ethiopia had scheduled power cuts because of insufficient water in hydropower dams and the possibility of further political instability which might constrain growth, as it did in the year of 2017/18, he said.

Prime Minister Abiy Ahmed came to power in 2018 following three years of intermittent protests and embarked on ambitious reforms, including proposals to open up the state-owned telecoms firm and the national carrier Ethiopian Airlines to private investors.

But he faces a number of challenges, including shortages of foreign currency. The draft budget said the government plans to get 40 billion birr in loans and 37 billion birr in grants, a bit less than half of the target in this year’s budget for combined loans and grants.

Last September, China restructured some of its loans to Ethiopia, including financing for a $4 billion railway.

Ethiopia’s total outstanding foreign debt stands at 27 billion dollars. Of that, 15.8 billion dollars is government debt and the remainder is owed by state-owned enterprises.

$1 = 28.6713 birr Writing by Omar Mohammed and Katharine Houreld; Editing by Andrew Heavens and Ed Osmond

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