June 1, 2011 / 6:16 AM / in 7 years

IMF says Ethiopia economy to slow in 2011/12

People walk past office blocks under construction in Ethiopia's capital Addis Ababa January 27, 2010.REUTERS/Thomas Mukoya

ADDIS ABABA (Reuters) - Ethiopia’s economic growth will slow to about 6 percent in the 2011/12 fiscal year due to high inflation, restrictions on private bank lending and a trickier business environment, the International Monetary Fund said.

“The principal macroeconomic challenge is surging inflation. While this partly reflects rising international commodity prices, excessive monetary growth has been the principal cause,” the IMF said in a statement late on Tuesday.

The Washington-based body projects growth of 7.5 percent this fiscal year, below official estimates of 11.4 percent.

Ethiopia’s year-on-year inflation rate surged for a second straight month to 29.5 percent in April, from 25.0 percent a month earlier.

IMF said Ethiopia’s budget saw a domestic financial surplus in the first half of 2010/11, but there was a significant recourse to central bank financing as the Treasury bill market collapsed, reflecting high negative interest rates.

The Horn of Africa country needed to provide room for the private sector to flourish and maintain a low risk of debt distress, IMF said.

“Going forward, the authorities are encouraged to reinforce financial sector supervision, continue implementation of the tax and customs reform plans, strengthen debt management, as well as efforts to improve the national accounts statistics,” IMF said.

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