Table of Contents
1. Introduction..................................................................
1
2. Price
Level....................................................................4
3. Public
Finance..............................................................16
4. Financial Sector Developments....................................22
5. Foreign Trade………………........................................27
6. Investment.....................................................................35
7. Statistical Annexes........................................................40
Introduction
This report examines the performance of selected macroeconomic aggregates during the third quarter of the 2003/04 fiscal year i.e. during the months of January to March 2004. The main macroeconomic aggregates covered include, in the order they appear in the report, prices, public finance, monetary aggregates, international trade, and investment.
Following
this brief introduction, the Second Section of the report analyzes the behavior
of prices during the quarter both at a regional and national level. During the
third quarter of fiscal year 2003/04, general inflation fell by 2.2 percent at
a national level relative to the preceding quarter. Food inflation also fell by
5.2 percent while the quarterly non-food price index rose by 4.8% during the
same period. As average quarterly inflation was negative at a national level, a
1 percent drop in quarterly growth in the average consumer prices was observed
at
A similar trend was also observed in all regional states. Compared to the preceding quarter, all regional states experienced falling consumer prices. The largest drop in the quarterly inflation relative to the preceding quarter was registered in Tigray regional state (-4.3%) followed by Gambella (-2.6 %) and Amhara (-2.2 %). Benshangul Gumz was the region with the lowest quarterly decline in the general consumer price index (-0.2%).
The third section of this report highlights developments in public finance. In this regard the major development in the quarter was the huge inflow of external grants. As such, about 1.6 billion Birr was released by donors which was more than 66 percent of the expected annual inflow of grants. Consequently, the quarterly overall balance (including grants) of the federal government registered a surplus of about 134 million Birr. The report also highlights that during the first nine months of the fiscal year, the federal government managed to collect 77 percent of the targeted annual revenue while spending 65 percent of the budgeted expenditure. In addition, the government has collected close to 77 percent of the promised inflow of grants for the fiscal year. In sum, the nine month fiscal balance (including grants) shows a deficit of about 1 billion Birr.
Section four of the report deals with developments in monetary aggregates. There was a relatively modest quarterly expansion in broad money supply by about 3.8 percent. The interest rate structure has remained more or less dormant despite some noticeable changes in the price level. Hence, all the interest rates were negative in real terms during the three months under consideration. In related development, the Treasury bills market showed close to 12 percent average demand gap which led to a quarterly decline in the annual average weighted yield of the different types of bills offered in the market.
The fifth section of the report examines the external sector of the economy. The figures show that there was a surge in the trade balance gap to more than 5 billion Birr with export receipts covering only 22% of import bills. This in turn worsened the current account deficit, which decelerates to about 3 billion Birr. On the other hand, the capital accounts balance, though less than its level relative to a quarter a go, has registered a surplus of about 380 million Birr. Despite these developments, the over all balance of payment recorded a surplus of 899.3 million Birr, which is attributed to the net errors and omissions. In other developments, the official inter-bank and parallel market rates of the domestic currency during the review period were Birr 8.6244 and Birr 8.6691 per USD, respectively, narrowing the spread between the two rates to 0.5% from 0.6% in the previous quarter.
The sixth and final section of the report deals with investment. A total of 671 projects with an investment capital of around 7.4 billion birr were given investment licenses in the review quarter. Compared to the 505 investment projects that got approval in the previous quarter, a higher number of projects (i.e.32.9% more) got approval in the review quarter. In terms of volume of capital, the figure registered in the review period is higher by 55.1% compared to the preceding quarter. It is expected that these projects would create permanent employment opportunities for 51,344 individuals in addition to 32,001 short-term jobs. 551 of the total 671 projects worth Birr 3.4 billion came from local private investors. The number of foreign investment projects was 112 with Birr 2.5 billion capital. The remaining 3 projects (worth Birr 1.5 billion) were requested by the public sector. Much of the capital of the approved investment projects went to agriculture, followed by construction, and manufacturing.
The capital city which attracted 61.6% of the total investment capital last quarter only managed to attract 39.6% during the review period. The share of the Oromia regional state in the total investment capital reached 36% from 18% during the last quarter. The remaining regional states each attracted less than ten percent of the total.
Enjoy the rest of the report and please do not hesitate to forward your comments and suggestions.
EEA/EEPRI, Macroeconomic Division
Prices
During the third quarter of fiscal year 2003/04 quarterly inflation dropped by 2.2 percent relative to the preceding quarter as food inflation fell by 5.2% despite a 4.8% rise in non-food inflation during the same period. It is for the second time in a row that quarterly average prices dropped following the 3.3% decline that was registered in the preceding quarter. During the same period last year, the quarterly general consumer price index saw an 8 percent growth which was mainly spurred by a 12.5 percent increase in food prices.
|
Table 2.1
Quarterly National Inflation - 2000/01-003/04. |
|
|||||||||||
|
|
2003/04 |
2002/03 |
2001/02 |
2000/01 |
||||||||
|
|
General |
Food |
Non-Food |
General |
Food |
Non-Food |
General |
Food |
Non-Food |
General |
Food |
Non-Food |
|
Qtr I. |
4.5 |
6.5 |
0.4 |
8.0 |
12.5 |
0.9 |
-2.1 |
-4.4 |
1.3 |
-1.2 |
-2.6 |
0.4 |
|
Qtr II |
-3.3 |
-5.2 |
1.0 |
4.5 |
7.0 |
0.4 |
0.1 |
-0.1 |
0.6 |
-6.6 |
-10.5 |
-2.0 |
|
Qtr III |
-2.2 |
-5.2 |
4.8 |
4.5 |
6.5 |
1.0 |
-2.0 |
-3.1 |
-0.4 |
0.2 |
0.1 |
0.6 |
|
Qtr. IV |
- |
- |
- |
4.5 |
6.9 |
0.0 |
0.8 |
2.5 |
-1.4 |
-3.8 |
-6.8 |
-0.1 |
Source: CSA and EEPRI/EEA staff computations
A declining in the price of food was the reason behind the fall in general inflation in two consecutive quarters. Except the relatively huge quarterly surge in the prices of vegetables and fruits (by 16.8%), prices of major food items dropped during the quarter in review. The prices of cereals, spices, and pulses notably went down by 10.7%, 13.2%, and 5.6%, respectively. (Fig 2.1)
Source: CSA and EEPRI/EEA staff computations
The decline in
the prices of food items in the third quarter, however, is anticipated. The third quarter is a period when the
agricultural output harvested during the previous and the same quarter goes to
the market. Further, last year’s rain was relatively favorable in many parts of
the country. Consequently, due to the increase in supply, as can be seen from
Fig 2.2, the level of food price index on average hits its lowest level during
this period. On the other hand, the non-food price
index does not show a significant seasonal variation (Table 2.1). As will be
explained below, the observed slightly higher than average price level during
the third quarter is, therefore, due to an increase in some of the components
that comprise the non-food price index.
Source: CSA and EEPRI/EEA staff computations
Comparison of inflation in different quarters is shown in the following graph. As could be read from the graph, quarterly food inflation rates during the review quarter are lower than the corresponding figures in the past two fiscal years. This comes as no surprise given that agricultural production is estimated to have increased by 18.9% in the current fiscal year, in contrast to its decline by 2.3% and 12.6% during 2001/02 and 2002/03, respectively. The non-food price index, however, has followed an opposite trend recently as it has been increasing since the fourth quarter of the previous fiscal year. In fact, the 4.8% rate recorded in the review quarter is one of the highest in several years.
Source: CSA and EEPRI/EEA staff computations
An attempt to investigate the causes behind the increase in the non-food index reveals that among non-food items which comprise relatively higher share in the non-food price index (namely, the prices of clothing & footwear, rental housing, construction materials, water and fuel & power) have shown the largest quarterly jump of 3.7 % (Fig 2.3). In particular, increasing prices in construction materials, fuel & power and water, have contributed to the rising trend in the last three quarters due to their relatively large share in the non-food index.
Source: CSA and
EEPRI/EEA staff computations
Though it is true that prices declined in the third quarter relative to the last quarter, annualized inflation rates[1] during the third quarter are much higher than their historical averages. For instance, by the end of the review quarter (i.e. March), annualized inflation was 13.6% compared to 8.4% in the same period last year. Annualized food and non-food inflation rates during the same month were 19.8% and 3.2% in contrast to the corresponding figures of 14% and 0.0% last fiscal year. In fact, during March 2000/01 and 2001/02 annualized inflation rates were -3.2% and -1.6%, respectively. The observed higher annualized inflation rates are most likely due to the lag effect of higher food inflation rates in the past two fiscal years.
|
Table 2.2 Third Quarter Monthly Inflation (2000/01- 2003/04) (Annualized
Average) |
|
|||||||||||
|
|
2003/04 |
2002/03 |
2001/02 |
2000/01 |
||||||||
|
|
General |
Food |
Non-Food |
General |
Food |
Non-Food |
General |
Food |
Non-Food |
General |
Food |
Non-Food |
|
January |
16.5 |
25.1 |
2.3 |
3.8 |
6.2 |
0.0 |
-8.8 |
-15.5 |
0.3 |
0.1 |
-2.6 |
4.2 |
|
February |
15.1 |
22.5 |
2.7 |
6.1 |
10.1 |
0.1 |
-3.3 |
-16.2 |
0.3 |
-0.5 |
-3.7 |
4.1 |
|
March |
13.6 |
19.8 |
3.2 |
8.4 |
14.0 |
0.0 |
-3.2 |
-16.1 |
0.7 |
-1.6 |
-5.2 |
3.5 |
As average quarterly
inflation was -2.2% at a national level, a 1 percent drop in quarterly growth
of the average consumer prices was also observed at
Source: CSA and EEPRI/EEA staff computations
the national rate. The fact that the capital city serves as a center of distribution for imported items, and the additional transportation costs that sellers incur as they move the items to the regions, among others, may explain low quarterly non-food inflation in Addis Ababa relative to other regions. The relatively lower decrease in food inflation in the city compared to what was observed at a national level would not be puzzling as the former depends on imports from the latter for its consumption requirements. During the second quarter of the same fiscal year, the average quarterly consumer price index fell by 0.3 percent and the quarterly food index saw even a higher 2.1 percent drop relative to the previous quarter.
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Table 2.3
Quarterly |
|
|||||||||||
|
|
2003/04 |
2002/03 |
2001/02 |
2000/01 |
||||||||
|
|
General |
Food |
Non-Food |
General |
Food |
Non-Food |
General |
Food |
||||