National Bank of Ethiopia Annual Report 2009/10 — NBE — ET

National Bank of Ethiopia 2009/10 annual report | 1 Governor’s Note Ethiopia has continued to register strong economic growth for the seventh time in a row in 2009/10 placing the country in a remarkable growth track. The economy grew
10.4 percent in 2009/10, higher than the estimated growth rate of 6.0 percent for SubSaharan Africa (SSA). Agriculture and allied activities with a share of 42 percent in
real GDP grew by 7.6 percent contributing 30.2 percent to the 10.4 percent GDP growth in the fiscal year. Service and industry sectors have also played a considerable role in the overall economic growth. Industry with a share of 13 percent in total GDP, scaled up by 10.6 percent mainly due to huge investment in electricity and water subsectors. Manufacturing, mining and quarrying as well as construction sectors have also registered remarkable growth to support the overall economic growth. The service sectors expanded by 13.0 percent contributing 56.6 percent to the annual economic expansion. During the fiscal year 2009/10, inflationary pressure continued to ease due to prudent monetary and fiscal policies and other government measures. Consequently, the annual average inflation dropped to 2.8 percent at the close of June 2010 against 36.4 percent a year earlier. Annualized food inflation, which has 57 percent share in total CPI inflation, scaled down from 44.3 percent to – 5.4 percent during the same period largely due to price decline in cereals, oil & fats and pulses. Similarly, annual average core (non-food) inflation went down to 18.2 percent compared to 23.8 percent a year ago, driven by the falling prices of house rent, construction materials, water, fuel and power. The government’s fiscal operations witnessed an overall fiscal deficit of 4.6 percent of GDP in contrast to 5.3 percent last year as a result of prudent fiscal policy. General government revenue, including grants depicted a 21.3 percent surge to reach Birr 66.2 billion owing to improved tax administration and notable economic growth. Revenue to GDP ratio, though still low compared to other developing countries, improved to
17.3 percent from 12.0 percent a year ago. General government expenditure
registered a 23.5 percent annual increase to reach Birr 71.3 billion.

National Bank of Ethiopia 2009/10 annual report | 2 Pertaining to the monetary sector, monetary policy has been aimed at containing inflationary pressure and building international reserve of the country. Accordingly, efforts have been made to make growth of broad money supply in line with nominal GDP growth. Domestic liquidity measured by broad money supply rose by 22.2 percent against a nominal GDP growth of 20.8 percent during the fiscal year. Broad money to GDP ratio dropped from 33 percent in 2006/07 to 27.5 percent in 2007/08 and further to 24.6 percent in 2008/09 but re-surged to 27.2 percent in 2009/10. The surge in broad money supply during the review year was due to 51.2 percent increase in net foreign asset and 17.1 percent rise in domestic credit. Interest rates, except Treasury bill yield, was positive due to low inflation during the year as opposed to the previous year. The financial sector registered robust growth in 2009/10 despite global economic shock and financial crisis. The total number of banks operating in Ethiopia reached 15 as two new private banks joined the industry during the fiscal year. The number of bank branches also increased by 45 from 636 to 681. As a result, the bank branch to population ratio has seen moderate improvement. Banks operating in the country registered high profit, enhanced resource mobilization, expanded their capital level, disbursed paramount loans and reduced their non-performing loans to a minimum level. During the review fiscal year, deposit mobilized and outstanding loans of the banking system surged by 56.7 and 20.6 percent, respectively. The banking system disbursed fresh loans amounting to Birr 28.9 billion, 13.5 percent higher than last year, despite NBE’s credit ceiling. Loan collection also went up by 14.1 percent over last year. Meanwhile, excess reserves declined by 25.4 percent and stood at Birr 6.3 billion against 8.4 billion last year. Similarly, credit expansion and deposit mobilization of MFIs has surged by 18.0 and
26.7 percent, respectively witnessing their principal role in income generating, asset
building and poverty reducing effort of the country.

National Bank of Ethiopia 2009/10 annual report | 3 With regard to external sector developments, the review fiscal year depicted strong performance in imports and exports, a surge in services and transfers and fairly narrowing current account deficit. Export proceeds amounted to USD 2.0 billion which was 36.7 percent higher than last year. The strong performance in export proceeds was due to higher proceeds from all major export items except leather & leather products and pulses. Net service recorded USD 456.6 million inflows, exceeding the preceding year by 18.7 percent, owing to the surge in net receipts from government, travel and transport services. On the other hand, total import bill grew by 7 percent and reached UDS 8.3 billion from UDS 7.7 billion last year. This was attributed to the increase in the value of import items like semi-finished goods (7.6 percent), fuel (4.3 percent), capital goods (16.6 percent) and consumer goods (5.5 percent), offsetting the 40 percent slowdown in raw materials import. As a result, the share of imports in total GDP rose to 26.5 percent from 24 percent a year ago. Net unrequited transfers witnessed modest growth of 8.4 percent in 2009/10, largely due to 22.8 percent rise in official transfers. Hence, the country’s current account deficit (including public transfers) narrowed to USD 1.3 billion in the review year from USD 1.6 billion in the preceding year. The overall balance of payments registered a surplus of USD 316.6 million, showing a 38.3 percent increase over a year earlier. Regarding exchange rate developments, the year 2009/10 revealed fast depreciation rate of the Birr against USD and other currencies. The Birr depreciated by 68.2 percent against Japanese Yen, 40.8 percent against USD, 31.7 percent against Swiss France , 27.9 percent against SDR and 8.7 percent against Euro. In the money market, the amount of T-bills sold in the review year was Birr 41.7 billion, showing a 12.5 percent decline relative to last year due to lower participation of banks. The bank’s share in T-bills outstanding went down to 33.3 percent in 2009/10 compared to 74.6 percent last year. The average yield across maturities, however, rose to 0.786 from 0.743 a year earlier. No inter-bank money market transactions were conducted during the review fiscal year. Besides the primary T-bills

National Bank of Ethiopia 2009/10 annual report | 4 market, corporate bonds were also floated and the outstanding stock of corporate bonds reached Birr 27.7 billion by the end of the review period. Looking ahead, the Ethiopian economy is projected to grow by 11.1 percent in 2010/11 as macroeconomic conditions are expected to continue improving. Concerted efforts will be made to contain inflation with in a single digit level by pursuing tight monetary and fiscal policies. Attention will also be given to improving international competitiveness by using appropriate exchange rate policy and other export enhancing mechanisms. Efforts also will be made to build international reserves of the country by prompting export, inward of remittances and FDI.

National Bank of Ethiopia 2009/10 annual report | 5
I. OVERALL ECONOMIC PERFORMANCE
1.1 Economic Growth
In 2009/10, real GDP growth was 10.4 percent slightly higher than 10 percent last fiscal year. This robust economic growth was in glaring contrast to 6 percent estimate for Sub-Saharan Africa. The growth was also continuous with 11.3 percent annual average growth during 2003/04- 2009/10. Accordingly, Ethiopia’s real per capita GDP has scaled up to Birr 1933 or USD 238 in real terms with annual average growth rate of 8.3 percent during the last 7 years. This high growth rate attained for the seventh time in a row was broad based with all sectors exhibiting good performance. Sector wise, the services sector showed 13 percent, while agriculture and industry exhibited 7.6 and 10.6 percent growth, respectively. As a result, the service sector contributed 57.7 percent to GDP growth, while the remaining
30.8 and 13.3 percent were
contributed by agriculture and industry, respectively. The resilience of the Ethiopian economy is projected to continue and show 11.0 percent expansion in 2010/11 compared to 5.5 percent average growth projection for SubSaharan Africa and 4.4 percent for the entire world.

National Bank of Ethiopia 2009/10 annual report 6 Items Fiscal Year 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Sector Agriculture 39,728 44,062 48,225 51,843 55,141 59,348 Industry 11,402 12,561 13,757 15,150 50,519 16,616 57,576 18,374 Services 33,312 37,747 43,534 65,084 Total 84,443 94,371 105,517 117,514 129,333 142,807 Less FISM 639 896 1,018 1,323 1,489 1,619 Real GDP 83,804 93,474 104,499 116,190 127,844 141,187 Growth in Real GDP 12.6 11.5 11.8 11.2 10 10.4 Real GDP per capita 1,334.0 1,441.0 1,553.0 1,664.0 1,764.0 1,933.0 Share in GDP (in percent ) Agriculture 47.4 47.1 46.1 44.6 43.1 42.0 Industry 13.6 13.4 13.2 13.0 Services 39.7 40.4 41.7 43.5 45.0 46.1 Growth in Real GDP per capita 9.0 8.0 7.8 7.1 6.0 9.6 Agriculture Absolute Growth 13.5 10.9 9.4 7.5 6.4 7.6 Contribution to GDP growth 6.4 5.1 4.4 3.3 2.7 3.2 Contribution in percent 50.8 44.5 36.9 29.9 27.6 30.8 Industry Absolute Growth 9.4 10.2 9.5 10.0 9.9 10.6 Contribution to GDP growth 1.3 1.4 1.3 1.4 Contribution in percent 10.1 11.8 10.7 11.7 12.9 13.3 Services Absolute Growth 12.8 13.3 15.3 16.0 14.0 13.0 Contribution to GDP growth 5.1 5.4 6.4 7.0 6.3 6.0 Contribution in percent 40.1 46.6 54.2 62.5 63.4 57.6
Table 1.1 Sectoral Contribution to GDP and GDP Growth
(In Millions of Birr)
Source: MoFED and Staff Computation Note: Sectoral contributions will not add-up to overall GDP growth because of Financial Intermediary Service Indirect Measurement (FISIM)
1.2 GDP by Sector
Regarding Sectoral breakdown of GDP, the services sector took the lead and accounted for 46.1 percent, followed by agriculture (42 percent) and industry (13 percent). The share of agriculture in GDP tended to decline over time; however, it still remains the largest employer, the main source of foreign exchange, and supplier of raw materials and market to domestic industries(Fig.1.1).

National Bank of Ethiopia 2009/10 annual report 7 Years 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/092009/10 Growth in real GDP Growth in Agriculture Growth in Service Growth in Industry Growth rates Fig. I.1: GDP Growth by Major Sectors 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 Source: Central Statistical Agency (CSA) The growth in agricultural outputs was largely attributed to improved productivity aided by favorable weather condition and conducive economic policy. Cultivated land expanded by 2.6 percent and reached
11.2 million hectares in 2009/10. Total
agricultural production was 180.8 million quintals. Productivity also increased from 12.1 quintal/hectare in 2004/05 to 15.7 quintal/hectare in 2009/10. Within the sector, the crop sub-sector has always been the main driving force. Accordingly, production of major crops including cereals, pulses and oilseeds increased by about 5.6 percent in 2009/10.

National Bank of Ethiopia 2009/10 annual report 8
Table 1.2: Estimates of Agricultural Production and Cultivated Areas of Major
Crops for Private Peasant Holdings - Meher Season (Area and production are in thousands of hectars and quintals, respectively) Agricultural Production 2006/07 2007/08 2008/09 2009/10 Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cereals (Percent Change) 8,471.9 4.8 128,797.9 10.8 8,730.0 3.0 137,169.9 6.5 8,770.0 0.5 144,964.1 5.7 9233.0 5.3 155342.2 7.2 Pulses (Percent Change) 1,379.0 6.7 15,786.2 24.2 1,517.7 10.1 17,827.4 12.9 1,585.2 4.4 19,646.3 10.2 1489.3 -6.1 18980.5 -3.4 Oilseeds (Percent Change) 741.8 -6.9 4970.8 2.2 707.6 -4.6 6169.3 24.1 855.1 20.8 6,557.0 6.3 780.9 -8.7 6436.1 -1.8 Total (Percent Change) 10,592.8 4.2 149,555.0 11.8 10,955.3 3.4 161,166.6 7.8 11,210.3 2.3 171,167 6.2 11,503.2 2.6 180758.8 5.6 Source: CSA The non-agricultural sector of the economy altogether showed a 23.6 percent expansion during the review year as a result of the combined effects of 10.6 and 13.0 percent growth in industry and service sectors, respectively. The growth in industrial sector was mainly attributed to electricity and water sub-sectors which rose 19.9 percent owing to huge investments in hydroelectric power generation and expansion activities. Manufacturing, which makes up 43 percent of the industrial sector value added, depicted annual growth rate of
22.5 percent. Mining and quarrying
sub-sector growth surged by 94.9 percent while construction sector showed a 1.2 percent slow down. In recent years, the service sector has taken the leading position in terms of its share in GDP. The most important and growing activities were public sector, financial sector and wholesale and retail sector activities. Financial intermediation depicted 32.8 percent annual average growth during 2004/05-2009/10 as the financial sector continued to expand along with robust economic growth.

National Bank of Ethiopia 2009/10 annual report 9
1.3 GDP by Expenditure Component
In the review year, the share of total consumption expenditure reached 94.4 percent of GDP slightly higher than
93.6 percent a year earlier reflecting
largely the rise in private consumption expenditure from 85.4 percent to 86.1 percent. Meanwhile, government consumption increased marginally from 8.2 percent to 8.3 percent. The ratio of gross domestic savings to GDP dropped to 5.5 percent from 6.4 percent a year ago. Similarly, gross capital formation reached 22.3 percent of GDP against 22.7 percent last year, although it is almost equal to the average estimate (21.7 percent) for SSA. Hence, the resource gap slightly widened to 19.4 percent of GDP from 18.2 percent last year largely as a result of slow down in gross domestic saving in relation to investment.
Table: 1.3: Expenditure on GDP and Gross Domestic Savings (As Percentage of GDP)
Year Domestic
Absorption
Consumption
Expenditure
Gross
Capital
Formation
Resource
Balance
Exports of
Goods
&
Services
Imports of
Goods
&
Services
Gross
Domestic
1996/97 Total Govt. Pvt. Savings 1997/98 109.2 88.0 9.8 78.2 21.2 -7.7 12.8 20.5 12.0 1998/99 113.9 92.0 15.6 76.4 21.9 -12.4 11.6 24.0 8.0 1999/00 111.3 91.0 17.9 73.1 20.3 -11.9 12.0 23.9 9.0 2000/01 111.5 90.0 14.6 75.4 21.5 -11.7 12.0 23.7 10.0 2001/02 118.1 94.0 14.8 79.2 24.1 -14.0 12.6 26.6 6.0 2002/03 118.2 96.0 13.4 82.6 22.2 -14.1 13.3 27.4 4.0 2003/04 114.6 88.1 13.1 75.0 26.5 -16.7 14.9 31.6 11.9 2004/05 117.9 94.1 12.4 81.7 23.8 -20.4 15.1 35.5 5.9 2005/06 120.6 95.4 12.2 83.2 25.2 -22.7 13.8 36.5 4.6 2006/07 113.1 91.3 10.5 80.8 22.1 -19.3 12.7 32.0 8.7 2007/08 117.2 94.8 9.8 85.0 22.4 -19.4 11.4 30.8 5.2 2008/09 116.3 93.6 8.2 85.4 22.7 -18.2 10.5 28.7 6.4 2009/10 116.7 94.4 8.3 86.1 22.3 -19.4 13.6 33.0 5.5 Average: 115.4 92.6 12.4 80.2 22.8 -16.0 12.8 28.8 7.4 Source: MoFED (Based on the Newly Revised Series)

National Bank of Ethiopia 2009/10 annual report 10
1.4 Micro and Small-Scale Enterprises
The five-year Growth and Transformation Plan has given particular attention to the expansion and strengthening of micro and small-scale enterprises. The sector is believed to be the major source of employment and income generation for a wider group of the society. The major objective of this program, which is creating and promoting MSEs in urban areas envisages to reduce urban unemployment rate. According to the Ministry of Works and Urban Development (MoWUD), a total of 176,543 MSEs were established in 2009/10 employing 666,192 people. The number of established and total employment created went up 141.6 and
25.6 percent, respectively, compared to a
year ago. The total amount of loan received from micro finance institutions was Birr 814.1 million under the review period, 22.8 percent higher than last fiscal year.
Table: 1.4 Numbers, Amount of Credit and Jobs Created through MSEs
(Credit in Millions of Birr) 2008/09 2009/10 Percentage Change A B C No. of MSEs 73,062 176,543 141.6 No. of Total Employment 530,417 666,192 25.6 Amount of credit (in millions of Br) 662.7 814.1 22.8 Source: MoWUD

National Bank of Ethiopia 2009/10 annual report 11
Table: 1.5. Number, Amount of Credit and Jobs Created through MSEs by Region
(Credit in Millions of Birr) Oromia Amhara SNNPR Tigray Harari Dire Dawa Addis Ababa Grand Total No. of MSEs 15,793 54,949 4,374 85,822 9,579 94 5,932 176,543 Amount of Credit 129.0 126.2 122.0 161.0 2.9 2.0 271.0 814.1 Total Employment 289,617 143,947 50,634 79,277 1,039 11,149 90,529 666,192 Percentage Share by Region No. of MSEs 9.0 31.1 2.5 48.6 5.4 0.1 3.4 100.00 Amount of Credit 15.8 15.5 15.0 19.8 0.4 0.2 33.3 100.0 No. of Total Employment 43.5 21.6 7.6 11.9 0.2 1.7 13.6 100.0 Source: MoWUD Regarding regional distribution, about
48.6 percent of total MSEs were
located in Tigray, followed by Amhara (31.1 percent), Oromia (9 percent), Harari (5.4 percent) and Addis Ababa (3.4 percent). Of the total credit disbursed through MFIs, Addis Ababa accounted for 33.3 percent, Tigray 19.8 percent, Oromia
15.8 percent, Amhara 15.5 percent,
SNNR 15 percent, Harari 0.4 percent and Dire Dawa 0.2 percent.

National Bank of Ethiopia 2009/10 annual report 12 In Percent Fig 1.2 R egional share of Number of MSE's and amountof credit During Fiscal year of 2009/10 100% 80% 2009/10 Amount of credit 2009/10 No.of MSE'S 2008/09 Amount of credit 2008/09 No.of MSE'S 60% 40% 20% 0% Oromia Amahar a SNNPR Tigray Afar Gambel Ben.Gu a mze Somali Harari Dire Dawa Addis Ababa 2009/10 Amount of credit 15.8 15.5 15.0 19.8 0.5 0.4 0.2 33.3 2009/10 No.of MSE'S 8.9 31.1 2.5 48.6 5.4 0.1 3.4 2008/09 Amount of credit 10.16 16.64 20.43 16.60 0.54 0.54 34.69 2008/09 No.of MSE'S 13.45 76.48 6.31 1.72 2.04 Source: MoWUD

National Bank of Ethiopia 2009/10 annual report 13
1.5 Mining
In 2009/10, The Ministry of Mines and Energy issued 183 licenses to investors, engaged in the prospecting, exploration and mining activities. These investors registered a total capital of Birr 12.7 billion. Upon going operational, the mining and petroleum development projects are expected to create jobs for 2,000 people (MoME). In the review period, the volume of minerals exported exhibited a 31.5 percent increase over last year. Foreign exchange earned from such exports reached USD 212.9 million from USD
106.7 million a year ago, depicting a
99.5 percent annual growth.
In terms of volume, Tantalite concentrate accounted for 96.7 percent of the total minerals exported, followed by gold (2.2 percent) and rough gemstones (1.1 percent) (Table1.6).

National Bank of Ethiopia 2009/10 annual report 14 Mineral type 2008/09 2009/10 Percentage A B C D Change Unit amount Revenue Unit amount Revenue C/A D/B Gold K.G 3,585.1 Kg 6003.0 _ 67.4 _ Rough Gemstones K.G 6,58.0 Kg 3105.0 _ 371.8 _ Platinum concentrate K.G NA Kg 0.64 _ _ Tantalite Concentrate K.G 206,000.0 Kg 267,328.0 _ 29.8 _ Total 210,243.1 106.7 276436.3.0 212.9 31.5 99.5
Table:1.6. Type of Mineral Exported and Revenue Generated
(Amount in k.g and Revenue in Millions of USD) Source: Ministry of Mines and Energy& NBE Staff Computation Note; Revenue is not disaggregated by mineral type
1.6 Access to Water Supply
The total annual replenishable ground water resources of the country have been estimated at 433 billion cubic meter (BCM). Keeping 34 BCM for natural discharge, the net annual ground water availability for the entire country is 399 BCM. The annual ground water drift is 231 BCM out of which 213 BCM is for irrigation and 18 BCM for domestic and industrial use. According to the Ministry of Water Resources, the overall national access to water supply on average was 68.5 percent (i.e., 91.5 percent for urban and
65.8 percent for rural) in 2009/10,
indicating a 2.3 percentage point increase over 2008/09. At the same time, urban population with access to potable water within 0.5 km radius reached 91.5 percent from 88.6 percent last year. Similarly, rural population with access to potable water within 1.5 km radius was 65.8 percent compared to 61.5 percent a year ago. In the five year Growth and Transformation Plan, access to potable water will reach 98.5 percent by 2015. Population with access to potable water with 0.5 km radius will also rise to 100 percent during the same period.

National Bank of Ethiopia 2009/10 annual report 15
Table: 1.7 Percentages of People with Access to Potable Water by Region
2008/09 2009/10
A B C D E F Change in percentage point Region Rural Urban Average Rural Urban Average D-A E-B F-C Addis Ababa 95.0 95.0 96.0 96.0 1.0 1.0 Tigray 80.0 76.8 79.4 58.8 85.3 64.0 -21.2 8.5 -15.4 Amhara 59.3 90.1 63.1 80.0 90.0 76.0 20.7 -0.1 12.9 Oromia 57.6 94.0 62.1 64.5 95.5 68.5 6.9 1.5 6.4 SNNPR 74.2 74.9 74.3 58.7 90.9 62.0 -15.5 16.0 -12.3 Afar 58.4 77.7 61.0 67.0 77.7 69.5 8.6 0.0 8.5 Somali 33.5 76.5 39.5 37.0 76.5 42.5 3.5 0.0 3.0 Ben-Gumz 51.5 84.7 56.3 81.0 90.1 80.2 29.5 5.4 23.9 Harari 56.0 72.0 64.7 53.0 95.0 75.8 -3.0 23.0 11.1 Gambella 44.6 71.5 51.4 63.1 73.0 65.7 18.5 1.5 14.3 Dire Dawa 75.8 94.0 88.2 76.0 79.7 78.1 0.2 -14.3 -10.1 National Average 61.5 88.6 66.2 65.8 91.5 68.5 4.3 2.9 2.3 Source: Ministry of Water Resources (MoWR) and NBE Staff Computation Note: Water supply access is calculated based on the provision of 20 liters/capita/day for urban and 15 l/c/d for rural at a radius of 0.5 and 1.5 kilo meters, respectively.

National Bank of Ethiopia Annu al V alu e in p erce nt Fig IX.1 Access to Water Supply by Region 120 100 80 2008/09 60 2009/10 40 20 0 Regions
1.7 Road Transport Development
In Ethiopia road network reached 48,793 km in 2009/10, out of which 44.8 percent was Federal and 55.2 percent rural roads. During the fiscal year, 1,981km new roads were constructed. Of the 21,849 km Federal roads, 34.2 percent was asphalt and 65.8 percent gravel road. The share of total paved roads in total road network was 15.3 percent compared to 14.8 percent last year. According to the five year Growth and Transformation Plan total road net work is planned to increase to 64,500 km in 2015. Likewise, road density per 1, 000 sq km. is targeted to rise to 123.7 sq. km in 2015 from 44.5 sq.km in 2010 while 2009/10 annual report 16

National Bank of Ethiopia 2009/10 annual report - 17 - % road density per 1000 population will increase to 1.54 in 2015 from 0.64 in 2010. The performance of road density per 1,000 sq. km showed 4.2 percent annual growth in 2009/10 and road density per 1000 population 5.2 percent compared to last fiscal year. All-weather road (rural road) expanded by 5.1 percent per annum constituting 55 percent (or 26,944 kms) in 2009/10. Besides, average distance from allweather roads slightly declined to 11.3 from 11.8 kilometers a year ago. Similarly, the proportion of area more than 5 km from all weather roads went down to 64.2 percent in 2009/10 from
65.3 percent in 2008/09.
The community road (not included in total road net work) reached 100,384 km depicting 17 percent growth over last year. Fig.1. Status of Roads 80 70 • Asphalt Roads in Good Condition 60

Gravel Roads in Goods
50 Condition
40
Rural Roads in Good 30 Condition
20
Total Roads Network in
10 Good Condition
0
Source: Ethiopian Roads Authority and NBE Staff Computation

National Bank of Ethiopia 2009/10 annual report - 18 - In Millions of Birr Fig.2. Investment in Road Construction and Expansion 16000 14000 12000 10000 8000 6000 2000 0

Federal Road
Regional Road
Community Road
Urban Road
Total Road Investment
Source: Ethiopian Roads Authority and NBE Staff Computation The percentage of total road network in good status was 56 percent in the review period.
Figure 2 depicts that the total
investment capital for road . construction and expansion had been steadily rising over the last nine years reaching Birr 15.04 billion in 2009/10 of which Birr 13.51 billion (or 89.9 percent) was attributed to Federal roads.

National Bank of Ethiopia 23,745 or 88 percent were located in the rural areas where about 83 percent of the total population lives. the preceding respectively. year and 2002/03, On the other hand, secondary education enrolment stood at 1.7 million, 6.8 and 155 percent higher than 2008/09 and 2002/03, respectively. In addition, by the end of 2009/10, the number of secondary schools (9-12 grades) reached 1,335 exhibiting a 171.9 percent growth since 2002/03. Of the total secondary schools, 1,053 or 78.9 percent were found in urban areas. Technical and Vocational Education and Training (TVET) enrolment was 0.4 million, 14.6 and 389.8 percent above in a year earlier and 2002/03, respectively. 2009/10 annual report 19
1.8 DEVELOPMENTS IN EDUCATION SECTOR
For the last eight consecutive years, the education sector has witnessed a significant improvement both in terms of quality and coverage. In line with this, Primary education (1- 8 grades) enrolment grew from 8.7 million in 2002/03 to 15.6 million 2008/09 and
15.8 million in 2009/10. Besides, the
number of primary schools reached 26,951 in 2009/10 from 12,471 in 2002/03. Of the total primary schools, In addition TVET admission reached 95,563 students in the review period. Parallel to this, the number of TVET institutions increased to 448 against 153 in eight years ago. The education share of the annual national budget was 25.4 percent of GDP, which was 1.8 and 9.3 percentage points higher than that of

National Bank of Ethiopia
1.8 Education Sector Data
Indicators
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 1995 1996 1997 1998 1999 2000 2001 2002 Improvement of Education Service

Number of primary schools
(urban, rural)
12,471 13,181 16,513 19,412 20,660 23,354 25,212 26,951
i. Urban NA 2,680 3,100 3,206 3,206
ii. Rural NA 17,980 20,254 21,886 23,745
Number of secondary schools
(urban, rural)
491 595 706 835 952 1,087 1,197 1,335
i. Urban NA 803 904 976 1053
ii. Rural NA 149 183 209 298
Number of TVET centers
(public, private, mission) 153 158 199 264 388 458 458 448
Number of tertiary level
institutions by universities (public, private), colleges (public, private) 13 21 23 50 55 61 72 90
i. universities NA 11 21 22 22 NA
Student intake capacity of
higher education institutions NA 43,764 56,421 NA NA
Participation of women in
higher education institutions (%) NA 26 24 22.2 26.5 Primary enrolment (in million)
8.7 9.5 11.4 12.7 14.0 15.3 15.6
15.8
Secondary enrolment (in thousands)
665.0 781.0 953.0 1190 1,399 1,501 1,588
1696
TEVT enrolment
72,162 87,158 106,336 123,557 191,151 229,252 308,501 353,420 Girls' primary enrolment(%)
41.2 42.6 44.2 45.2 45.9 46.5 47.3
47.4
Grades (1-4) gross enrolment
ratio(%)
84.2 86.9 102.7 117.6 117.1 127.8 122.6
118.8 a. Girls' gross enrolment ratio
(%)
73.5 78.3 95.5 111.2 111.2 122.8 118.4
114.3 b. Goys' gross enrolment ratio
(%)
94.6 95.2 109.8 123.9 122.9 133 126.7
123.2
Grades (5-8) gross enrolment
ratio(%)
42.4 47.1 52.5 58.8 61.1 60.2 63.1
65.5 a. Girls' gross enrolment
ratio(%)
31.9 36.9 42.6 49.8 53.7 55.5 60.5
63.5 b. Goys' gross enrolment ratio
(%)
52.5 57 62 67.4 68.3 64.8 65.6
67.4
Girls' gross primary
enrolment ratio (%)
53.8 59.1 71.5 83.9 85.1 90.5 90.7
101.6
Boys' gross primary
enrolment ratio(%)
74.6 77.4 88 98.6 98 100.5 97.6
108.4

National Bank of Ethiopia

Gross Primary Enrolment
ratio (%) (urban, rural, regional)
64.4 68.4 79.8 91.3 91.7 95.6 94.4
93.4 a. Tigray 73.7 80.6 91 101.5 104.8 109 107.1 103.3
b. Afar
13.8 14.8 20.9 21.9 22.2 26.2 31.2 39.3
c. Amhara
58.5 61.8 75.9 93 93.1 112.4 112.5 104.9
d. Oromia
66.9 72.7 87.5 97 91.4 91.4 88.9 88.4
e.Somali 15.1 15.1 23.3 30.3 38.5 32.7 35 65.6 f. Ben.Gumuz
98.4 100.5 107.4 122.5 127.9 112.3 112.1 114.6
g. SNNPR 71.8 74.2 78.9 89.4 97.8 102.9 101 97.3 h. Gambella
124.6 106.6 127.4 137.1 181.4 121.4 112.5 125.1
i. Harari 105.7 104.5 92.4 103.1 116.8 108.4 107.9 95.3
j. A.A 135.4 142.6 150.2 162 146.6 114.3 109.2 107.3 k. Dire Dawa
78.6 83.2 83.9 79 80 86.3 92.1 91.3
Primary net enrolment rate(%)
54 57.4 68.5 77.5 79.1 83.4 83 82.1
No. of students registered in
the first cycle primary schools(1-4) (in million) 6 6.5 8 8.7 9.8 10.7 10.6 10.5
No. of students registered in
the second cycle primary schools(5-8) (in million)
2.7 3 3.4.2 4.6 5
5.3
Number of students
registered in the first cycle secondary schools(9-10) (in million)
0.6 0.7 0.9 1.1 1.2 1.3 1.4
1.5
Gross enrolment rate in (9-10 grades)(%)
19.3 22.1 27.3 33.2 37.3 37.1 38.1
39.1
Number of students
registered in the second cycle secondary schools(11-12)(in million )
0.08 0.095 0.092 0.1 0.2 0.2 0.21
0.24
Preparatory admission
NA 101,367 100,651 118,289 142,781
TVET Admission NA NA 94,592 NA 99,430 95,563 NA 95563
Completion rate of primary
school (%)
23.5 27.1 34.3 41.7 42.9 44.7 43.6
47.8
D 70 74 79 83 85 87 90
Girls/boys ratio in
secondary schools(%)
55 52 53 54 59 63 67
0.75
Girls/boys ratio in(9-10)
0.58 0.55 0.55 0.57 0.61 0.65 0.72
0.78
Girls/boys ratio in (11-12)
0.4 0.37 0.37 0.35 0.5 0.48 0.4
0.56
Girls/boys ratio inTVET
0.93 0.9 1.05 1.01 0.78 0.92 0.86
0.8
Girls/boys ratio in higher
education
0.18 0.2 0.24 0.24 0.25 0.24 0.28
0.36
Grade 1-8(primary)
repetition rates (%)
6.7 3.7 3.8 6.1 6.1 6.7 6.7
4.9

National Bank of Ethiopia

Primary school dropout rate
(%)
19.2 14.8 11.8 12.4 12.4 14.6 14.6
18.6
1st grade dropout rate (%)
NA 31.4 22.4 20.6 20.1 18.3 22.9 28.1
Pupil/teacher ratio
i. Grade (1-8)
64 65 66 62 59 57 54 51
ii. Grade (9-12) 45 48 51 54 48 43 41 36
iii. TEVT 25 22 21 20 27 25 34 NA
iv. In higher education 13.7 20.5 28.5 35.9 24.3 NA 28.2 26.8
Pupil/section ratio
i. Grade (1-8)
73 74 69 69 64 62 59 57
ii. Grade (9-12)
77 79 78 82 79 74 68
64
Number of class rooms in
primary schools
117,988 126,368 161,795 183,088 206,106 263,623 218,793 NA
Pupil-textbook ratio
i. Grade(1-8) NA 1.5
ii. Grade(9-12) NA 1
Pupil-school ratio
i. Grade(1-8)
701.1 724 693.3 652 678.3 657 619 57
ii. Grade(9-12) 1,355 1,312 1,350 1,425 1,449 1,381 1,345 64
iii. TEVT 472 552 534 468 493 501 673
Annual education share of
the national budget{%}
16.07 20.35 16.7 17.82 24.6 22.8 23.6
25.4
Proportion of pupils
starting grade 1 who reach grade 5(%) NA 53.4 59.3 56.8 59.3 49.2 NA NA
Percentage of female
enrolled in under graduate degree (%)
18.1 20.8 24 24.8 26 24.1 29
27
Percentage of female
graduated in under-graduate degree (%)
11.2 15.2 16.4 16.2 18 20.6 29.7
23.4
Percentage of female
enrolled in post-graduate degree
6.9 6.7 9.2 10 10 9.6 11.3
11.9
Percentage of female
graduated in post- graduate degree
8.9 7.1 9 9.8 9.4 10.7 10.5
13.9
Source:- Education Statistics Annual Abstract, Ministry of Education & NBE Staff Computation

National Bank of Ethiopia
II. ENERGY PRODUCTION
2.1 Electric Power Generation
Ethiopia has immense potential for hydroelectric power and geothermal energy generation. Nine of its major rivers are suitable for hydroelectric power with a total capacity of generating 45,000 MW. The country also has vast potential for geothermal energy generation. The Ethiopian Electric Power Corporation (EEPCo) supplies power to more than 1,830,052 customers. According to the five year Growth and Transformation Plan, the country’s installed electricity generating capacity was 2000 MW in 2010 and it is planned to surge to 8000 MW by the end of fiscal year 2014/15. . The Ethiopian Electric Power Corporation is a public enterprise mandated with the task of generating, transmitting, distributing, and selling electricity. The Corporation generates electricity through two different power supply systems, namely, the Inter Connected System (ICS) and Self Contained System (SCS). The ICS, which is largely generated by hydropower plants, constitutes the major source of electric power in Ethiopia. The SCS system merely contributed about 1.2 percent in 2009/10.

National Bank of Ethiopia 2009/10 annual report 24 Fig.II.1 Trends in Share of ICS and SCS in Total Power Generation 120.0 100.0 % 80.0 i n r e a 60.0 h S 40.0 20.0 0.0 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 ICS share in% 96.5 96.2 96.2 98.0 98.0 98.3 99.1 99.1 98.6 98.2 98.2 98.8 99.2 99.0 98.8 SCS share in% 3.5 3.8 3.8 2.0 2.0 1.7 0.9 0.9 1.4 2.0 1.8 1.2 0.8 1.0 1.2 Year ICS share in% SCS share in% Source: EEPCo The total amount of electric power generated during 2009/10 was 3905.4 million KWH, 5.5 percent higher than a year ago. Some 88.1 and 11.3 percent of the electric power was generated through hydropower and thermal power, respectively while the remaining 0.6 percent came from geothermal source (Table 2.1). As per the government’s five-year Growth and Transformation Plan, the coverage of electricity is planned to scale up to 75 percent in 2015 from 41 percent in 2010. Energy utilization capacity is also to grow to 8000 MW from 2000 MW during the same period. In addition, the number of customers accessing electric power is envisaged to double to 4 million in 2015 in contrast to 2 million in 2010. Currently, the number of towns and cities having access to electricity has reached 5,163.

National Bank of Ethiopia 2009/10 annual report 25
Table 2.1: Electric Power Generation in ICS and SCS
(i n 000 KWH)
Source
2007/08 Share 2008/09 Share 2009/10 Share Percentage Change [A] In percent [B] In percent [C] In percent [C/A] [C/B] ICS Hydro Power 3,368,682 95.4 3,277,138 88.5 3418609.8 87.5 1.5 4.3 Thermal Power 131,769 3.7 380,416 10.3 418169.8 10.7 217.4 9.9 Geothermal - 6,581 0.2 23522.4 0.6 _ 257.4 Sub Total 3,500,450 99.2 3,664,134 99.0 3860302.0 98.8 10.3 5.4 SCS Hydro Power 2,733 0 7,928 0.2 20113.06 0.6 635.9 153.7 Thermal Power 27,097 0.8 30,542 0.8 24960.226 0.6 -7.9 -18.3 Geothermal - - 0 Sub Total 29,830 0.8 38,470 1.0 45073.3 1.2 51.1 17.2 Total Hydro Power 3,371,415 95 3,285,066 88.7 3438722.8 88.1 2.0 4.7 Thermal Power 158,865 5 410,958 11.1 443130.1 11.3 178.9 7.8 Geothermal - 6,581 0.2 23522.4 0.6 _ 257.4 Grand Total 3,530,280 100 3,702,604 100 3905375.27 100.00 10.6 5.5 Source:EEPCo
2.2 Volume and Value of Petroleum Imports
A total of 1,994.2 million metric tons of petroleum products worth Birr 16,826 million were imported into the country by the Ethiopian Petroleum Enterprise (EPE) during the period under review. The import value was 31.6 percent higher than that of 2008/09 on account of the continuous rise in the international oil prices. Component wise, the value of imports of regular gasoline, jet fuel, fuel oil and gas oil grew by 54.4, 21.3, 10.8 and 35.8 percent, respectively. In volume terms, petroleum imports rose 1.1 percent in 2009/10 in contrast to the decline in the volumes of Jet fuel and fuel oil.

National Bank of Ethiopia 2009/10 annual report 26 Products 2008/09 2009/10 Percentage Volume Value Volume Value Change [A] [B] [C] [D] [C/A] [D/B] Regular Gasoline (MGR) 142,983 890,747 155759.8 7 1,375,397 8.9 54.4 Jet Fuel 505,701 3,671,264 489778.5 4,451,842 -3.1 21.3 Fuel Oil 152,704 671,463 111570.2 6 744,190 -26.9 10.8 Gas Oil (ADO) 1,170,531 7,548,767 1237077. 2 10,254,92 4 5.7 35.8 Total 1,971,918 12,782,24 1 1994185. 9 16,826,35 3 1.1 31.6
Table 2.2: Volume and Value of Petroleum Imports (Volume in MT and Value in '000 Birr)
Source: Ethiopian
Petroleum Enterprise

National Bank of Ethiopia 2009/10 annual report 27 V olume In MT Fig. II.2 Trends in Volume of Petroleum Imports 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Year Source: EPE MGR Jet Fuel Fuel Oil Gas Oil

National Bank of Ethiopia 2009/10 annual report 28 Value in '000 Birr Fig. II.3 Trends in Value of Petroleum Imports 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Year MGR Jet Fuel Fuel Oil Gas Oil Source: EPE Generally, the domestic retail prices of petroleum products are adjusted monthly in line with the movements of oil prices in the world market. Accordingly, the retail prices of MGR, fuel oil, gas oil and kerosene were adjusted upward in the review period. As a result, the average domestic prices of all petroleum products increased over a year ago. In Addis Ababa, the average retail prices of these products grew by 8.8 percent through the fiscal year 2009/10.

National Bank of Ethiopia 2009/10 annual report 29 Year Quarter MGR Fuel Oil Gas Oil Kerosene 2006/07 Qtr.1 7.60 4.20 5.20 3.90 Qtr.2 8.00 5.60 5.40 4.10 Qtr.3 7.70 5.20 5.40 4.10 Qtr.4 7.70 5.20 5.40 4.10 Average 7.80 5.00 5.40 4.10 2007/08 Qtr.1 7.80 4.10 5.40 4.10 Qtr.2 7.80 4.10 5.40 4.10 Qtr.3 9.60 5.90 6.90 5.70 Qtr.4 9.60 5.90 6.90 5.70 Average 8.70 5.00 6.20 4.90 2008/09 Qtr.1 9.61 5.89 6.90 5.72 Qtr.2 9.61 7.40 9.40 7.50 Qtr.3 8.14 5.90 7.81 6.00 Qtr.4 8.20 5.80 7.30 5.70 Average 8.89 6.25 7.85 6.23 2009/10 Qtr.1 9.67 8.10 8.45 7.46 Qtr.2 12.33 9.53 10.15 8.88 Qtr.3 12.99 9.88 10.53 9.29 Qtr.4 13.10 9.87 10.72 9.50 Average 12.02 9.34 9.96 8.78 Table2.3 : Annual Retail Prices of Petroleum Products in Addis Ababa ( Birr / liter) Source: Ethiopian Petroleum Enterprise

National Bank of Ethiopia 2009/10 annual report 30 Value in Birr/Liter Qtr.1 Qtr.2 Qtr.3 Qtr.4 Qtr.1 Qtr.2 Qtr.3 Qtr.4 Qtr.1 Qtr.2 Qtr.3 Qtr.4 Qtr.1 Qtr.2 Qtr.3 Qtr.4 Qtr.1 Qtr.2 Qtr.3 Qtr.4 Qtr.1 Qtr.2 Qtr.3 Qtr.4 Fig. II.4 Quarterly Average Retail Price of Petrolium Products in Addis Ababa (Birr/Liter) 14 12 10 8 6 4 2 0 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Year MGR Fuel Oil Gas Oil Kerosene Source: EPE

National Bank of Ethiopia 2009/10 annual report | 31
III. PRICE DEVELOPMENTS
3.1.Developmentsin Consumer Price at National Level Annualized 1 headline inflation at the end of 2009/10 was 2.8 percent, which was 33.6-percentage points lower than the previous year level. This was largely attributed to the slowdown in the prices of food items whose combined contribution was 29.4 percentage points 2 while nonfood items made up the remaining 4.2 percentage points (Table 3.1). Annualized food inflation, on the other hand, dropped to -5.4 percent indicating remarkable decline of 49.7 percentage point vis-à-vis 44.3 percent a year ago due to a significant decline in the prices of cereals (accounted for about 40 percent of food inflation), bread and prepared food, potatoes, pulses and oil & fats among others. 1 ‘Annualized’ means 12 month average of CPI 2 Contribution of a given consumption item (j) in a basket containing n different consumption items is computed as:
Similarly annual average core inflation dropped to 18.2 percent from 23.8 percent at the close of last fiscal year (Table 3.1 and Fig. 3.1) as a result of lower prices of beverages, house rent, construction materials, water, fuel and power; cigarettes & tobacco and furniture furnishing, household equipment and operation, which jointly accounted for
62.4 percent of the spending on
consumption of non-food items.
Year-on-year, headline inflation picked up to 7.3 percent from 2.7 percent a year earlier (Fig 3.2) as both food and non-food price inflation started to increase from November 2009 onwards. Accordingly, annual food inflation, which stood at -12.4 percent in July 2009, gradually increased to 0.04 percent registering 3.3 percentage point surge over the preceding year level. Similarly, the year-on-year core inflation rose to 19.7 percent. ç å a CPI - å a CPI ÷ å å a CPI where CPI, a, ç æ11 11 ÷ö n 11 ç - - - - - ÷ - - - è çi= 0 j(t i) j(t i) i= 0 j(t i) j(t 12 i)÷ø j=1i= o j(t i) j(t 12 i) t and i each stands for price index, weight attached to the index, the month for which contribution is being computed, and the number of lags of the current and

National Bank of Ethiopia 2009/10 annual report | 32 the last eleven months from t

National Bank of Ethiopia 2009/10 annual report | 33 Inflation in % J FM A M J J A SO J FM A M J J A SO J FM A M J J A SO J FM A M J
Table 3.1: Annual Average Inflation Rates (In percent )
Consumption
Items
2008/09 2009/10 Change (in Percentage Points) Contribution to Change in Headline Inflation (in Percentage Points) A B B-A C General 36.4 2.8 -33.6 -33.6 Food 44.3 -5.4 -49.7 -29.4 Non-Food 23.8 18.2 -5.5 -4.2 Source: CSA and NBE Staff Computation
Figure 4.1 Developments in Annualized National Headline, Food & Core
Inflation
80.0
60.0
40.0
20.0
0.0
-20.0
2007/08 2008/09 2009/10 General Food Core Source: CSA and NBE Staff Computation

National Bank of Ethiopia 2009/10 annual report | 34 Inflation in % J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J
Figure 4.2 Developments in Annual (year-on-year) National Headline,
Food and Core Inflation 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 2007/08 2008/09 2009/10 Headline Food Core Source: CSA and NBE Staff Computation
3.2 Consumer Price Developmentsin Regional States
At the close of 2009/10, regional simple average headline inflation stood at 4.0 percent registering notable decline of
34.7 percentage point. Addis Ababa,
Harari, Afar, Dire Dawa, and Somali regional states saw inflation rates above the regional simple average although headline inflation scaled down in all regional states due to the decline both in food and non-food inflation (Table 3.2) Gambella regional state registered the highest decline in headline inflation (59.4 percentage point); while the lowest decline was recorded in Afar (14.7 percent). Between 2008/09 and 2009/10, Gambella, Somali and Harari regional states experienced relatively high price instability, while the other regions moderately witnessed more stable prices,

National Bank of Ethiopia 2009/10 annual report | 35 Som Tigray ali SNNP Ga Harari Oromia mb ella Dire Addis Afar Amhara B. Inflation in % as measured by the extent of change in the rate of inflation of a given regional state relative to standard deviation of the change across regions (Table 3.2).
Table 3.2: Regional Average Annual Inflation (2008/09 FY)
Regions
2008/09 2009/10 Change General Food Non Food General Food Non Food General Food Non Food A B C D E F G=D-A H=E-B I=F-C Addis Ababa 29.4 41.5 19.2 10.1 4.1 16.0 -19.3 -37.4 -3.2 Afar 27.4 39.3 10.2 12.7 7.5 22.4 -14.7 -31.8 12.2 Amhara 34.7 42.4 18.5 0.7 -6.9 20.0 -34.0 -49.3 1.5 B.Gumz 40.9 52.6 22.4 -2.9 -11.7 14.5 -43.8 -64.3 -7.9 D.Dawa 33.4 47.3 16.6 5.5 1.0 12.2 -27.9 -46.3 -4.4 Gambella 56.2 69.5 36.2 -3.2 -9.4 8.2 -59.4 -78.9 -28.0 Harari 42.4 57.3 25.6 6.8 2.5 12.9 -35.6 -54.8 -12.7 Oromia 39.1 45.6 27.8 1.1 -7.0 17.3 -38.0 -52.6 -10.5 SNNP 38.5 44.4 29.6 4.0 -4.7 18.9 -34.5 -49.1 -10.7 Somali 44.1 57.2 19.6 8.3 3.7 19.6 -35.8 -53.5 0.0 Tigray 40.7 49.8 24.8 1.0 -7.5 18.9 -39.1 -57.3 -5.9 Mean 38.7 49.7 22.8 4.0 -2.6 16.4 -34.7 -52.3 -6.3 Standard dev. 7.8 8.9 7.1 5.2 6.5 4.2 11.9 12.6 10.0 Coeff. of Var. 0.20 0.18 0.31 1.3 -2.5 0.3 -0.3 -0.2 -1.6 Source: CSA and NBE Staff Computation Fig.4.3: Reigional Variations in Average Annual Headline Inflation 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 2009/10 2008/09 Source: CSA and NBE Staff Computation

National Bank of Ethiopia 2009/10 annual report | 36 80.0
70.0 2008/09 2009/10
60.0
50.0
40.0
30.0 2
20.0
10.0
0.0
-10.0
V alues in
%
Afar
Am h ara
B. G u m uz
Dire Dawa
Ga m bella
Harari
Oro mia
SNNP
Som ali
Tigray
A ddis
A b a b a
The regional simple average food inflation was -2.6 percent at the end of June 2010 (Table 3.2). Food inflation in regional states like Addis Ababa, Afar, Dire Dawa, Harari and Somali was higher than the regional simple average but 52.3 percentage point lower vis-à-vis a year earlier. The highest decline (Table 3.2) in food inflation was registered in Gambella (78.9 percentage points); and the lowest in Afar (31.8 percentage points). Over the twoyear period (2008/09 to 2009/10), food price instability was high in Gambella, Benishangul Gumz, and Tigray states but low in Dire Dawa, Afar, and Addis Ababa. Fig.4.4: Regional Variations in Average Annual Food Inflation Source: CSA and NBE Staff Computation During 2009/10, simple average regional non-food inflation stood at 16.4 percent (Table 3.2). Afar, Amhara, SNNP, Oromia, Somali and Tigray recorded nonfood inflation higher than the regional simple average. Compared to 2009/10, all regional states, except Afar and Amhara, exhibited a decline in non-food inflation.

National Bank of Ethiopia 2009/10 annual report | 36 Regions Tigray Har Oromia SNNP Somali ari D Gambella ire B. Dawa G umz A mhara Ad Afar dis Aba ba Values in % Fig 4.5 Regional Variations in Average Annual Non-food Inflation 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 2009/10 2008/09 Source: CSA and NBE Staff Computation The highest rise in non-food inflation was recorded in Afar (12.2 percentage points), and the lowest in Gambella (-28 percentage points). Concerning convergence as measured by the change in coefficient of variation 3 in regional rates of inflation between 2008/09 and 2009/10, no significant change was observed presumably due to the growing regional market integration as transportation and communication facilities improved. In general, inflation has moderated through the fiscal year as a result of concerted efforts being made to break inflationary 3 Coefficient of variation is the ratio of standard deviation to mean. expectations through various fiscal, monetary and administrative measures.

National Bank of Ethiopia 2009/10 annual report 37
IV. MONETARY AND FINANCIAL DEVELOPMENTS
4.1 Monetary Developments and Policy
During the year under review, Ethiopia’s monetary policy was geared towards containing inflationary pressure. Accordingly, the National Bank of Ethiopia has been closely monitoring monetary developments so as to arrest the speed of inflation and inflationary expectations. This was manifested in reducing annual average headline inflation down to 2.8 percent by end 2009/10 compared to 36.4 percent last year. 4.1.1Developments in Monetary Aggregates As at end 2009/10 domestic liquidity, as measured by broad money supply (M2), reached Birr 104.4 billion reflecting 22.2 percent growth, compared with the same period last year, largely due to the increase in net foreign assets and domestic credit by
51.2 and 17.1 percent, respectively. Credit
to the non-government sector grew remarkably by 26.6 percent and reached Birr 71.4 billion, while net credit to the government marginally increased by less than one percent. Fiscal year 2009/10 also witnessed a surge in all components of broad money. Narrow money rose by 24.5 percent due to higher currency outside banks and demand deposits reflecting the growth in economic activities and improvements in transactions demand for money. Similarly, quasimoney, that comprises savings and time deposits, went up by 28.7 percent and reached Birr 52.0 billion, owing to improved financial intermediation as banks expanded their outreach through opening up of new branches.

National Bank of Ethiopia 2009/10 annual report 38 Particulars Year Ended June 30 Annual Percentage Change 2006/07 2007/08 2008/09 2009/10 2006/07 2007/08 2008/09 2009/10 Narrow Money Supply . Currency Outside Banks . Demand Deposits (net) Quasi-Money . Savings Deposits . Time Deposits Broad Money Supply 29,617.68 13,708.39 15,909.29 27,034.20 23,715.18 3,319.03 56,651.89 35,350.36 17,654.10 17,696.26 32,831.78 29,477.65 3,354.13 68,182.14 42,112.66 19,715.01 22,397.64 40,397.09 37,148.72 3,248.37 82,509.75 52,434.63 24,206.80 28,227.84 51,997.77 48,041.57 3,956.21 104,432.4 24.38 20.01 28.41 19.80 15.77 59.57 22.2 19.36 28.78 11.23 21.45 24.30 1.06 20.4 19.13 11.67 26.57 23.04 26.02 -3.15 21.0 24.51 22.78 26.03 28.72 29.32 21.79 26.6 (In Millions of Birr)
Table 4.1: Components of Broad Money
(In Millions of Birr)
Source: NBE
Fig V.1: Major Components of Broad Money (1989/90 - 2009/10) 24,000 Broad Money 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 89/90 91/92 93/94 95/96 97/98 99/00 01/02 03/04 05/06 07/08 09/10 Year Currency Outside Banks Net Demand Deposit Quasi- Money Source: NBE

National Bank of Ethiopia 2009/10 annual report 39 Annual Percentage gro wth
Table 4.2: Factors Influencing Broad Money
(In Millions of Birr)
Particulars
Year Ended June 30 Percentage Change 2006/07 2007/08 2008/09 2009/10 2006/07 2007/08 2008/09 2009/10 External Assets (net) Domestic Credit . Claims on Central Gov't (net) . Claims on Non-Central Gov't Other Items (net) Broad Money (M2) 13,340.36 61,844.20 30,337.64 31,506.55 18,532.67 56,651.89 11,665.63 79,969.25 33,075.66 46,893.59 23,452.75 68,182.14 17,976.81 89,203.04 32,786.50 56,416.54 24,670.10 82,509.75 27,189.78 104,413.49 33,013.08 71,400.41 27,170.87 104,432.40 10.2 25.5 20.1 31.1 23.3 22.2 -12.6 29.3 9.0 48.8 26.5 20.4 54.1 11.5 -0.9 20.3 5.2 21.0 51.2 17.1 0.7 26.6 10.1 26.6 Source: NBE Others 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 Fig V.2: Major Determinants of Monetary Growth NFA 600.0 500.0 400.0 300.0 200.0 100.0 0.0 -100.0 Ethiopian Fiscal year Credit to Central Gov't Credit to Non-Central Gov't Broad Money Net Foreign Assets Source: NBE
4.1.2. Developments in Reserve Money and Monetary Ratios
During the year under review, reserve money or base money showed a 9.6 percent growth over last year due to the significant increase in currency in circulation which offset the slight decline in deposits of banks at the NBE. Excess reserves of commercial banks decreased to Birr 6.2 billion from Birr
8.4 billion last year reflecting the
slowdown in deposits of commercial

National Bank of Ethiopia 2009/10 annual report 40 banks at the NBE and the rise in their lending activities. The ratio of M2/GDP, an indicator of financial deepening, went up merely by
4.5 percent to 25.6 percent in 2009/10,
partly indicating the tight monetary policy measures taken to mitigate the inflationary pressure.
Table 4.3: Reserve Money and Monetary Ratios
(In Millions of Birr)
Year Ended June 30 Percentage Change Particulars 2006/07 2007/08 2008/09 2009/10 2006/07 2007/08 2008/09 2009/10 Reserve Requirement (CB's) Actual Reserve (CB's) Excess Reserve (CB's) Reserve Money . Currency in Circulation . Bank Deposits Money Multiplier (Ratio):
. Narrow Money to Reserve Money . Broad Money to Reserve Money Other Monetary Ratios ( percent ):
. Currency to Narrow Money . Currency to Broad Money . Narrow Money to Broad Money . Quasi Money to Broad Money M2/GDP Ratio* 2,592.5 11,734.0 9,141.5 27,313.6 15,175.2 12,138.4 1.1 2.1 51.2 26.8 23.5 47.7 32.9 9,112.9 15,233.0 6,120.1 35,551.1 20,216.4 15,334.7 1.0 1.9 57.2 29.7 17.1 48.2 27.4 11,183.3 19,569.4 8,386.0 45,107.0 23,836.4 21,270.7 0.9 1.8 56.6 28.9 21.8 49.0 24.5 14,368.0 20,620.9 6,252.9 49,424.5 28,802.9 20,621.5 1.1 2.1 54.9 27.6 26.0 49.8 25.6 22.2 38.8 44.4 28.9 20.8 40.8 -3.5 -5.3 -2.9 -1.1 1.8 -1.9 -6.3 251.5 29.8 -33.1 30.2 33.2 26.3 -8.3 -7.5 11.6 10.7 -27.3 0.9 -16.7 22.7 28.5 37.0 26.9 17.9 38.7 -6.1 -4.6 -1.0 -2.6 27.3 1.7 -10.5 28.5 5.4 -25.4 9.6 20.8 -3.1 13.6 15.5 -3.0 -4.5 19.5 1.7 4.5 Source: NBE

M2/GDP ratio was calculated on the basis of new GDP series

National Bank of Ethiopia 2009/10 annual report 41 Value in millions of Birr 60000 Fig. V.3: Reserve Money 50000 40000 30000 20000 10000 0 year Reserve Requirement (CB's) Actual Reserve (CB's) Excess Reserve (CB's) Reserve Money Source: NBE
4.2. Developments in Interest Rate
The review year witnessed no changes in the interest rate structure of commercial banks. As a result, minimum deposit interest rates on saving deposits remained at the previous year level of 4 percent per annum. Similarly, the maximum deposit rate stood at 5 percent. Accordingly, average interest rate on savings deposit was at the preceding year level of 4.5 percent. Average lending rate also remained unchanged and stood at 12.25 percent. The weighted annual average interest rate of time deposits, however, decreased to 4.7 percent from 5.26 percent during the same period. Compared with year-on-year inflation of 7.3 percent in 2009/10, all deposit rates, except average lending rates and weighted yields of T-bills and bond were negative in real terms. In contrast to the annual average headline inflation of 2.8 percent ,however, all interest rates except T-bills yield were positive.

National Bank of Ethiopia 2009/10 annual report 42
Table 4.4: Interest Rate Structure of Commercial Banks
(In percent per annum) Rates 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Deposit Rate Savings Deposit Minimum Maximum Average* Time deposit Up to 1 year 1 -2 years Over 2 years Average* Demand Deposit (Average*) 6.000 6.177 6.360 6.383 6.307 - 3.000 3.150 3.075 3.302 3.513 3.566 3.461 0.041 3.000 3.150 3.075 3.349 3.617 3.822 3.596 0.039 3.000 3.150 3.075 3.398 3.640 3.836 3.625 0.045 3.000 3.150 3.075 3.471 3.710 3.939 3.707 0.049 3.000 3.150 3.075 3.604 4.005 4.297 3.969 0.058 3.000 3.150 3.075 3.639 4.112 4.490 4.080 0.062 4.000 4.150 4.075 4.666 5.228 5.588 5.161 0.041 4.000 5.000 4.500 4.580 6.204 4.998 5.260 0.057 4.000 5.000 4.500 4.564 4.970 4.613 4.716 0.059 Lending Rate Minimum Maximum Average* 10.500 15.000 12.750 7.500 14.000 10.750 7.000 14.000 10.500 7.000 14.000 10.500 7.000 14.000 10.500 7.000 14.000 10.500 7.000 14.000 10.500 8.000 15.000 11.500 8.000 16.500 12.250 8.000 16.500 12.250 Real Rate of Interest Deposit 1/ Deposit 2/ Lending/1 T-bills (Nominal) 6.347 4.582 13.097 2.829 13.647 2.786 21.322 1.982 -7.849 2.923 -0.424 1.311 -4.272 0.839 3.153 1.052 -3.051 -1.277 4.374 0.133 -7.502 -4.073 -0.077 0.039 -12.755 -10.419 -5.330 0.495 -21.242 -8.376 -13.817 0.673 -31.889 -19.250 -24.139 0.802 1.700 -13.700 13.700 0.894 Source: NBE 1/ Real saving deposit interest rates and real lending rates computed based on headline inflation. 2/ Real saving deposit interest rates computed based on core inflation.

It is simple average for saving deposit and lending rates, while weighted mean for time and demand
deposits. As a result, the movements in the average interest rate on time and demand deposits reflect the change in the proportion of commercial bank deposits that would pay higher interest rate on time and demand deposits, rather than the change in interest rate.

National Bank of Ethiopia 2009/10 annual report 43 Value in % 15.00 Fig. V.4: Interest Rate Structure of Commercial Banks 10.00 5.00 0.00 Years Average Saving Deposit Rate Average Time Deposit Rate Average Lending Rate Source: NBE
4.3 Developments in Financial Sector
The major financial institutions operating in Ethiopia are banks, insurance companies and micro-finance institutions. The number of banks operating in the country reached 15 following the establishment of two new banks. In terms of ownership, twelve were private commercial banks, and the remaining three state-owned. During the fiscal year, 45 new branches were opened raising the total branch network in the country to 681 from 636 last year. As a result, bank branch to population ratio improved to 117,474 (Taking total population 80 million) from 126,258 in 2008/09. As Cooperative Bank of Oromia, Oromia International Bank and Dashen Bank aggressively expanded their branch networks, the share of private banks grew from 57 percent last year to 60 percent by the end of 2009/10. About 39 percent of the bank branches were concentrated in Addis Ababa, which is the capital and major business center of the country.

National Bank of Ethiopia 2009/10 annual report 44 Following significant capital injection by the private banks mainly Wegagen Bank, Awash International Bank, Dashen Bank, Nib International Bank and Berhan International Bank, the total capital of the banking industry showed a 16.7 percent increase to Birr 12.9 billion by the end of June 2010. As a result, the share of private banks in total capital of banks rose to 40.2 percent from
36.5 percent last year.
Despite the continuous increase in the capital base, the Ethiopian banking industry is still very small even by African standard suggesting the need for further efforts to enhance financial intermediation in the country. In the meantime, the number of insurance companies remained 12 though the number of their branches increased to 207 following the opening of 13 additional branches. A significant expansion of branches was under taken by Oromia Insurance Share Company (5 branches), followed by Awash Insurance Company (4 branches) and Global Insurance Company (3 branches). Of the total insurance branches, about 50 percent were located in the capital, Addis Ababa. Ownership wise, private insurance companies owned 81.2 percent of the total branches, up from 79.9 percent a year ago. Similarly, the total capital of insurance companies grew by 47.5 percent to Birr
962.4 million, with private insurance
companies accounted for 65.3 percent.

National Bank of Ethiopia 2009/10 annual report 45 percent 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Fig V.5: Capital and Branch Ne tw ork of the Bank ing Sys tem (2007/08- 2009/10) Ye ar and ite m s Total Public Banks Total Private Banks Source: Commercial Banks

National Bank of Ethiopia 2009/10 annual report 46 Banks Branch Network Capital 2008/09 2009/10 2008/09 2009/10 Addis Ababa Regions Total percent Share Regions Addis Ababa Total percent Share Total Capital percent Share Total Capital percent Share

Public Banks
Commercial Bank of
Ethiopia
Construction & Business Bank Development Bank of Ethiopia Total Public Banks 160 17 31 208 49 15 1 65 209 32 32 273 32.9 5.0 5.0 42.9 160 17 31 208 49 15 1 65 209 32 32 273 30.7 4.7 4.7 40.1 5,041.0 196.0 1,800.0 7,037.0 45.5 1.8 16.2 63.5 5,532.0 229.0 1,969.0 7,730.0 42.8 1.8 15.2 59.8
Private Banks
Awash International Bank Dashen Bank Abyssinia Bank Wegagen Bank United Bank Nib International Bank Cooperative Bank of Oromiya Lion International Bank Oromia International Bank Zemen Bank Buna International Bank Berhan International Bank Total Private Banks 29 28 22 26 15 17 23 11 16 0 187 31 26 25 23 26 28 3 9 4 1 0 0 176 60 54 47 49 41 45 26 20 20 1 0 0 363 9.4 8.5 7.4 7.7 6.4 7.1 4.1 3.1 3.1 0.2 0.0 0.0 57.1 31 29 22 27 15 17 32 11 21 0 0 3 208 31 30 25 23 27 31 5 11 6 3 3 5 200 62 59 47 50 42 48 37 22 27 3 3 8 408 9.1 8.7 6.9 7.3 6.2 7.0 5.4 3.2 4.0 0.4 0.4 1.2 60 555.0 815.0 421.0 656.0 449.0 581.0 155.0 192.0 100.0 121.0 - - 4,045.0 5.0 7.4 3.8 5.9 4.1 5.2 1.4 1.7 0.9 1.1 - - 36.5 721.0 967.0 482.0 828.0 506.0 723.0 169.0 201.0 208.0 121.0 169.0 108.0 5,203.0 5.6 7.5 3.7 6.4 3.9 5.6 1.3 1.6 1.6 0.9 1.3 0.8 40.2 3.Grand Total Banks 395 241 636 100 416 265 681 100.0 11,082.0 100.0 12,933.0 100.0
Table 4.5. Capital and Branch Network of the Banking System at the Close of June 30, 2010
(Branch in Number and Capital in Millions of Birr) Source: Commercial Banks

National Bank of Ethiopia 2009/10 annual report 47 No. Insurance Companies Branch Capital 2008/09 2009/10 2008/09 2009/10 percent Change Total A.A Regions Total A B B/A 1 2 3 4 5 6 7 8 9 10 11 12 Ethiopian Insurance. Co. Awash Insurance. Co. Africa Insurance. Co. National Insurance. Co. United Insurance. Co. Global Insurance. Co. Nile Insurance. Co. Nyala Insurance. Co. Nib Insurance. Co. Lion Insurance. Co. Ethio-Life Insurance. Co. Oromia Insurance. Co. 39 22 13 16 21 7 20 16 21 10 - 9 11 15 6 8 15 6 11 8 12 6 - 6 28 11 7 8 7 4 9 8 8 5 - 8 39 26 13 16 22 10 20 16 20 11 - 14 249.4 52.9 59.0 14.8 39.3 22.9 56.4 61.6 60.3 7.1 3.3 25.6 333.9 93.7 23.4 105.2 20.4 90.0 77.9 102.7 77.0 13.2 4.4 20.5 33.9 77.2 -60.3 611.9 -48.0 293.2 38.2 66.8 27.8 85.5 - - 13 Total 194 104 103 207 652.3 962.4 47.5 In millions of Birr Branch in number
Table.4.6: Branch Network and Capital of Insurance Companies
(Branch in Number and Capital in Million Birr) Source: Insurance Companies Note: A.A refers Addis Ababa Fig.6; Branch Network of Insurance Companies 300 200 100 0 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Fiscal Year Branch Number Source: Insurance Companies Fig.7:Capita of Insurance Campanies 1500 1000 500 0 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Fiscal year Capital Source: Insurance Companies

National Bank of Ethiopia 2009/10 annual report 48 Micro-Financing Institutions 2008/09 2008/09 percent Change A B B/A Total Capital 1,737,402.7 2,375,228.0 36.7 Saving 2,098,742.1 2,658,962.0 26.7 Credit 4,936,135.2 5,824,489.0 18.0 Total Assets 6,620,630.8 7,958,194.0 20.2 By the end of 2009/10, the number of micro finance institutions (MFIs) operating in the country rose by 2 and reached 30. Their total capital also increased by 36.7 percent to Birr 2.4 billion compared to last year. Similarly, their deposit mobilization and credit provision increased by 26.7 and 18.0 percent, respectively indicating the growing role of microfinance institutions. Mirroring their expanded activities, total assets of MFIs rose by 20.2 percent and reached Birr
8.0 billion at the end of fiscal year 2009/10
from Birr 6.6 billion last year.
Of the total MFIs, 46.7 percent were operating in Addis Ababa. The three largest MFIs, namely the Amhara, Oromia and Dedebit Credit and Savings institutions accounted for 65.4 percent of the total capital, 81.4 percent of the savings, 74.0 percent of the credit and
76.2 percent of the total assets of MFIs.
Table 4.7: Micro finance Institutions Performance as of June 2010 (In Thousands of Birr)
Source: Micro finance Institutions
4.3.1 Resource Mobilization
The total resources mobilization by the banking system in the form of net deposits, collection of loans and net borrowings increased by 28.3 percent and reached Birr 48.1 billion at the end of 2009/10 (Table 4.8). Spurred by remarkable branch expansion, deposit liabilities of the banking system were Birr 98.6 billion reflecting annual growth rate of 26.2 percent. Component wise, savings deposits registered a significant increase of 29.3 percent followed by demand deposits (23.8

National Bank of Ethiopia percent), and time deposits (18.8 percent). Saving deposits accounted for
48.7 percent of the total deposits
followed by demand deposits (46.8 percent) and time deposits (4.5 percent). Despite the arrival of two new private banks and the opening up of 45 new branches, the share of private banks in deposit mobilization stood at 38.2 percent up from 35.2 percent last year. CBE alone mobilized 58 percent of the total deposits due to its large branch network. Borrowing by the banking industry is not an important source of resource mobilization as most of the banks are sufficiently liquid due to higher deposit mobilization and collection of loans. However, total outstanding borrowing at the end of the fiscal year reached Birr 5.6 billion from Birr 3.0 billion a year earlier. Of the total borrowing, domestic sources accounted for 82.7 percent, while foreign sources took the remaining balance. Birr 15.0 billion (59.4 percent) of the total loan collection was attributed to the private banks. On the other hand, loan collection by the banking system reached Birr 25.1 billion showing a 14.1 percent increase. About 2009/10 annual report 49

National Bank of Ethiopia
Table 4.8: Annual Resource Mobilization and Disbursing Activities of Commercial Banks and DBE (Specialized
Bank) at June 30, 2010 (In Millions of Birr) Particulars 2007/08 2008/09 2009/10 percent Change Public Banks Private Banks Total (A) Public Banks Private Banks Total (B) Public Banks Private Banks Total (C) C/A C/B

Deposits (net change)
Demand
Savings
Time
Borrowing (net change)
Local
Foreign
Collection of Loans
Total Resources Mobilized
(1+2+3)
Disbursement
Change in Liquidity (4-5)
Memorandum Item:
Outstanding Credit*
4,283.1
2,054.3
2,308.3
(79.5)
269.4
197.6
71.8
9,493.0
14,045.4
15,447.5
(1,402.1)
31,666.6
4,808.0
1,420.2
3,455.1
(67.3)
-
-
-
9,296.2
14,104.2
11,807.0
2,297.2
16,575.2
9,091.1
3,474.5
5,763.4
(146.8)
269.4
197.6
71.8
18,789.2
28,149.7
27,254.5
895.2
48,241.8
7,524.9
4,482.9
2,905.7
136.3
366.2
225.0
141.2
10,368.8
18,260.0
12,782.3
5,477.7
33,912.8
7,670.8
3,042.3
4,765.4
(137.0)
-
-
-
11,596.7
19,267.5
12,694.7
6,572.8
17,720.8
15,195.7
7,525.2
7,671.1
(0.6)
366.2
225.0
141.2
21,965.5
37,527.4
25,477.0
12,050.5
51,633.5
11,863.0
6,813.9
4,574.5
474.5
2,597.5
2,266.1
331.4
10,168.0
24,628.4
13,939.3
10,689.2
39,384.7
8,618.4
2,067.9
6,322.0
228.5
-
-
-
14,898.8
23,517.2
14,965.8
8,551.4
22,907.5
20,481.4
8,881.8
10,896.6
703.0
2,597.5
2,266.1
331.4
25,066.8
48,145.6
28,905.1
19,240.5
62,292.2
125.3
155.6
89.1
424900
864.3
1,047.0
361.5
33.4
71.0
6.1
2,049.4
29.1
34.8
18.0
42.0
703600
609.3
907.1
134.7
14.1
28.3
13.5
59.7
20.6
Source: Commercial Banks and Staff Computation

Includes coupon bonds issued by the government
2009/10 annual report 50

National Bank of Ethiopia 2009/10 annual report 51 2007/08 2008/09 2009/10 C/A C/B A B C A. Deposits -Demand -Savings -Time T o t a l 29,742.0 29,482.2 3,732.0 62,956.3 37,267.3 37,153.3 3,731.4 78,152.0 46,149.0 48,049.9 4,434.4 98,633.3 55.2 63.0 0.0 56.7 23.8 29.3 18.8 26.2 B. Borrowings -Local -Foreign 2,174.5 506.1 2,399.4 647.3 4,665.6 978.7 114.6 93.4 94.4 51.2 T o t a l 4,256.6 3,046.7 5,644.2 32.6 85.3
Table 4.9: Deposits and Borrowings of Commercial Banks and DBE at June 30, 2010
(In Millions of Birr)
Source: Commercial Banks and Staff Computation
4.3.2 New Lending Activities
Commercial banks, including DBE, disbursed Birr 28.9 billion to the various economic sectors. Due to the tight monetary policy measures taken by the National Bank of Ethiopia, the fiscal year witnessed a moderate increase (13.5 percent) in fresh loan disbursements largely due to higher loan collection that can be re-lent without affecting the outstanding limits. Of the total new loans disbursed by the banking system, 51.8 percent was by private banks, with the public banks taking up the balance. The ratio of new loan disbursement by the private banks to their total deposit stood at 24.9 percent while that of public banks was 36.2 percent. Concerning the beneficiaries of the new loans, 28.4 percent went to finance international trade followed by domestic trade (17.9 percent), and industry (17.2 percent) while other sectors consumed the remaining balance. The production sector (agriculture, industry and housing and construction) together took about
46.1 percent of the new loans disbursed
reflecting the concentration of loans in trade and other short term loans than in direct production activities.

National Bank of Ethiopia 2009/10 annual report 52 Lenders 2008/09 2009/10 D* C* O/S* D* C* O/S* Percentage Change A B C D E F D/A E/B F/C A. Public Banks 1.Commercial Bank of Ethiopia
3. Construction & Business Bank of Ethiopia
2.Development Bank of Ethiopia Sub-Total B. Private Banks 4 Awash International Bank
5. Dashen Bank
6. Bank of Abyssinia
7. Wegagen Bank
8. United Bank
9. Nib International Bank
10. Cooperative Bank of Oromia
11. Lion International Bank
12. Oromia International Bank
13. Zemen Bank
14.Berhan International Bank 15.Bunna International Bank Sub-Total Grand Total 11098.9 1297.8 385.6 12,782.3 2845.6 2293.6 1367.2 2153.2 1452.9 1234.3 581.5 452.2 108.2 205.9 12,694.7 25,477.0 9340.6 399.3 628.9 10,368.8 2291.8 2187.6 1644.9 2348.5 1198.9 1265.0 393.6 227.2 10.8 28.3 11,596.7 21,965.5 24,779.8 1,404.9 7,728.1 33,912.8 2722.4 4447.0 2701.7 2112.3 2153.0 2220.3 592.5 469.6 113.3 188.6 17,720.8 51,633.5 10697.0 494.3 2747.9 13,939.3 2955.7 2231.8 2139.8 2189.4 2283.7 1066.8 572.4 355.0 424.0 367.6 155.5 224.2 14,965.8 28,905.1 9116.5 496.5 555.1 10,168.0 3153.3 2434.3 1884.6 2324.4 2153.6 1325.0 635.4 313.7 263.2 275.6 108.3 27.6 14,898.8 25,066.8 22,859.0 1,748.3 8,787.2 33,394.6 3163.6 5033.1 3153.2 2473.9 2524.7 2546.1 721.9 583.5 383.9 369.0 153.2 191.4 21,297.5 54,692.1 -3.6 28.2 111.7 9.1 3.9 -2.7 56.5 1.7 57.2 -13.6 -1.6 -21.5 291.8 78.5 - - 17.9 13.5 -2.4 -21.1 39.0 -1.9 37.6 11.3 14.6 -1.0 79.6 4.7 61.4 38.1 2328.9 872.1 - - 28.5 14.1 -7.8 -77.4 525.5 -1.5 16.2 13.2 16.7 17.1 17.3 14.7 21.8 24.3 239.0 95.6 - - 20.2 5.9 V alue in M illions of Birr Fig V.8: Development in Deposit Mobilization, Lending and Loan Collection Activities of Banking System (2004/05-2009/10) 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 Net Deposit Lending Loan collection Source: Commercial Banks and DBE
Table.4.10: Loans and Advances by Lenders 1/ (In Millions of Birr)
Year & Bank Ownership
Source: Commercial Banks

O/S Credit excludes lending to central government
D*=Disbursement,C*=Collection, O/S*= Outstanding Credit

National Bank of Ethiopia 2009/10 annual report 53 Lenders 2008/09 2009/10 D* C* O/S* D* C* O/S* Percentage change A B C D E F D/A E/B F/C A. Public Banks -15.1 13.0 86.6 -3.9 -14.5 -30.8 21.8 -14.1 -12.9 -78.6 490.5 -7.0 1.Commercial Bank of Ethiopia 2.Development Bank of Ethiopia
3. Construction & Business Bank of Ethiopia
Sub-Total
43.6
1.5
5.1
50.2
42.5
2.9
1.8
47.2
48.0
15.0
2.7
65.7
37.0
1.7
9.5
48.2
36.4
2.0
2.2
40.6
41.8
3.2
16.1
61.1
B.Private Banks
4 Awash International Bank
5. Dashen Bank
6. Bank of Abyssinia
7. Wegagen Bank
8. United Bank
9. Nib International Bank
10. Cooperative Bank of Oromia
11. Lion International Bank
12. Oromia International Bank
13. Zemen Bank
14.Berhan International Bank 15.Bunna International Bank Sub-Total Grand Total 11.2 9.0 5.4 8.5 5.7 4.8 2.3 1.8 0.4 0.8 0.0 0.0 49.8 100.0 10.4 10.0 7.5 10.7 5.5 5.8 1.8 1.0 0.0 0.1 0.0 0.0 52.8 100.0 5.3 8.6 5.2 4.1 4.2 4.3 1.1 0.9 0.2 0.4 0.0 0.0 34.3 100.0 10.2 7.7 7.4 7.6 7.9 3.7 2.0 1.2 1.5 1.3 0.5 0.8 51.8 100.0 12.6 9.7 7.5 9.3 8.6 5.3 2.5 1.4 1.2 1.3 0.5 0.1 59.4 99.9 5.8 9.2 5.8 4.5 4.6 4.7 1.3 1.1 0.7 0.7 0.3 0.4 38.5 99.5 -8.4 -14.2 37.9 -10.4 38.5 -23.8 -13.2 -30.8 245.4 57.3 - - 3.9 0.0 20.6 -2.5 0.4 -13.3 57.4 -8.2 41.4 38.1 2328.9 872.1 - - 12.5 -0.1 9.7 6.8 10.2 10.6 10.7 8.3 15.0 24.3 239.0 95.6 - - 12.0 -0.5
Table 4.11: Percentage Share of Loans and Advances by Lenders
(In Millions of Birr)
D*=Disbursement, C*=Collection, O/S*= Outstanding Credit
4.3.3 Outstanding Loans
Total Outstanding credit of the banking system, including the central government, increased by 20.6 percent and reached Birr 62.3 billion at the end of June 2010. Gross outstanding claims on the central government and public enterprises increased by 35.0 and 3.3 percent, respectively while claims on the private sector and cooperatives surged by 20.2 and 50.9 percent (Table 4.13). Sectoral distribution of outstanding loans indicated that credit to finance trade (both domestic and international) accounted for
33.2 percent, industry (19.6percent) and
agriculture ( 10.9 percent). Claims on the private sectors including cooperatives stood at Birr 46.0 billion or 71.1 percent of the total outstanding claims reflecting a 21.4 percent growth over last year (Table 4.12).

National Bank of Ethiopia 2009/10 annual report 54 Economic Sectors 2008/09 2009/10 Percentage Change D* C* O/S* D* C* O/S* D* C* O/S* A B C D E F D/A E/B F/C Government Deficit Financing Agriculture Industry Domestic Trade International Trade Export Import Hotels and Tourism Transport and Communication Housing and Construction Mines, Power and Water resource Others Personal Interbank Lending 0 3,037.5 2,668.3 5,264.9 8,165.5 2,858.5 5,307.0 274.6 903.3 4,040.2 - 771.2 241.8 109.89 0 2,802.2 1,879.3 4,378.8 7,200.3 2,867.7 4,332.6 278.6 1,339.6 3,010.6 1.6 863.7 132.5 78.358 5,628.8 6,009.7 9,081.6 5,760.6 12,513.6 3,409.2 9,104.4 1,023.7 2,531.8 6,688.1 4.6 1,815.6 147.8 427.5 0 4,437.1 4,958.2 5,169.4 8,217.4 5,279.5 2,937.9 320.2 965.6 3,916.0 7.2 343.5 272.3 298.25 0 3,619.6 2,213.3 5,550.2 8,114.0 4,472.5 3,641.5 265.5 1,122.6 3,163.6 6.7 727.7 134.7 148.9997 7,600.1 5,720.8 12,718.4 6,505.1 13,758.6 4,386.9 9,371.6 1,307.5 2,875.4 8,511.1 3.7 2,149.2 226.9 240.4 46.1 85.8 (1.8) 0.6 84.7 (44.6) 16.6 6.9 (3.1) (55.5) 12.6 - 29.2 17.8 26.7 12.7 56.0 (16.0) (4.7) (16.2) 5.1 308.0 (15.7) 1.6 90.2 35.0 (4.8) 40.0 12.9 9.9 28.7 2.9 27.7 13.6 27.3 (20.7) 18.4 53.5 (43.8) Total 25,477.0 21,965.5 51,633.5 28,905.1 25,066.8 62,292.2 13.5 14.1 20.6 In Millions of Birr Table 4.12: Loans and Advances by Economic Sectors 1 Source: Commercial Banks &Staff Computation D*=Disbursement, C*=Collection, O/S*= Outstanding Credit 1/ includes lending to central government Fig V.9: Sectoral Breakdown of Bank Credit(1999/00-2008/09) 100000.0 80000.0 60000.0 40000.0 20000.0 0.0 1999/00 2001/ 02 2003/ 04 2005/ 06 2007/ 08 2009/10 Fiscal Year Agriculture Industry Domestic Trade & Services International Trade Housing & Construction Others

National Bank of Ethiopia 2009/10 annual report 55 Borrowing Sector 2006/07 2007/08 2008/09 2009/10 O/S* O/S* O/S* D* C* O/S* A B C D E F Central Government 13,214.9 6,902.0 5,628.8 0.0 0.0 7,600.1 Public Enterprises 3,263.1 8,732.6 8,170.8 1,448.8 2,660.3 8,535.1 Cooperatives 2,025.0 3,161.1 3,364.5 3,722.4 2,367.5 3,876.4 Private & Individuals 25,513.4 29,269.6 34,041.9 23,435.6 19,890.0 41,539.0 Inter-bank Lending 225.7 176.5 427.5 298.2 149.0 66.3 Total 44,242.2 48,241.8 51,633.5 28,905.1 25,066.8 62,292.2 Total less Inter-bank Lending 44,016.4 48,065.3 51,206.0 28,606.8 24,917.8 62031.3
Table 4.13: Loans and Advances by Borrowers1
(In Millions of Birr)
Source: Commercial Banks and Staff Computation D*=Disbursement, C*=Collection, O/S*= Outstanding Credit 1/ Includes lending to central government
4.4. Financial Activities of NBE
By the end of 2009/10, outstanding claims of NBE on the central government reached Birr 46.0 billion due to a 4.4 percent rise in direct advances, offsetting the slight decline (0.5 percent) in government bonds. Direct advances to the government stood at Birr 36.4 billion or 79.2 percent of the total claims, while bond holdings accounted for 20.8 percent. Concerning the liabilities of NBE, total deposits at the NBE grew by 8.0 percent due to the rise in deposits of financial institutions and central government by 8.8 and 5.5 percent, respectively.

National Bank of Ethiopia 2009/10 annual report 56 Particulars 2007/08 2008/09 2009/10 percent Change A B C C/A C/B Loans and Advances (1+2) 1.Claims on Central Gov’t
1.1 Direct Advance
1.2 Bonds
2. Claims on DBE
3. Deposit Liabilities
3.1 Government
3.2 Financial Institutions
41,563.1
41,563.1
31,818.0
9,745.1
-
21,710.9
6,157.3
15,553.6
44,498.7
44,498.7
34,891.0
9,607.7
-
28,054.3
6,671.5
21,382.8
45,989.7
45,989.7
36,434.1
9,555.6
-
30,310.3
7,036.6
23,273.8
10.7
10.7
14.5
-1.9
-
39.6
14.3
49.6
3.4
3.4
4.4
-0.5
-
8.0
5.5
8.8
Table 4.14: Financial Activities of National Bank of Ethiopia at the Close of June 30, 2010
(In Millions of Birr)
Source: NBE and Staff Computation
4.5 Developments in Financial Markets
Treasury bills market is the only regular primary market where securities are transacted on a fortnightly basis. There is no secondary market for the securities. Government bonds are occasionally issued to finance government expenditures and/or to absorb excess liquidity in the banking system.
4.5.1 Treasury Bills Market
The amount of Treasury-bills offered to the fortnightly auction market during the fiscal year reached Birr 55.2 billion, showing 93.9 percent annual surge while the total demand increased by 9.6 percent. Of the total T-bills offered, T-bills worth Birr
41.7 billion were sold depicting 49.9 percent
annual growth.
The dominance of commercial banks in the T-bills market continued to diminish in the review year owing to enhanced participation of non-bank institutions. At the end of 2009/10, the total outstanding T-bills stood at Birr 11.6 billion, up by 48.6 percent vis-à-vis the preceding year balance. The nonbank institutions held 62 percent of the total outstanding T-bills. The average weighted yield for all types of bills slightly increased to
0.79 from 0.74 percent last year.
The yields for both 28-days and 91- days T-bills tended to increase, while that of 182 days declined by 12.5

National Bank of Ethiopia 2009/10 annual report 57 Particulars 2007/08 2008/09 2009/10 Percentage Change A B C C/A C/B Number of Bidders Amount Demanded (Mn.Birr) 28-day bill 91-day bill 182-day bill Amount Supplied (Mn.Birr) 28-day bill 91-day bill 182-day bill Amount Sold (Mn.Birr) Banks Non-Banks Average Weighted Price for Successful bids(Birr) 28-day bill 91-day bill 182-day bill Average Weighted Yeild for Successful bids( percent ) 28-day bill 91-day bill 182-day bill Outstanding bills at the end of period(Mn.Br.) Banks Non-Banks 182 59,888.510 20,587.510 17,779.000 21,522.000 48,889.000 12,320.000 15,394.000 21,175.000 47,716.510 35,613.000 12,103.510 99.820 99.947 99.825 99.688 0.677 0.700 0.704 0.628 8,239.500 2,739.000 5,500.500 261 46,767.200 10,441.900 29,477.700 6,847.600 28,471.900 4,265.000 15,931.700 8,275.200 27,839.800 2,672.000 25,167.800 99.797 99.951 99.783 99.657 0.743 0.636 0.871 0.723 7,783.100 1,672.000 6,111.100 280 51,258.015 19,760.000 27,553.755 3,944.260 55,203.315 15,110.000 28,150.495 11,942.820 41,736.415 13,902.000 27,834.415 97.017 99.943 99.757 91.352 0.786 0.750 0.976 0.633 11,566.200 4,400.000 7,166.200 53.8 -14.411 -4.019 54.979 -81.673 12.916 22.646 82.867 -43.599 -12.533 -60.964 129.970 -2.808 -0.004 -0.067 -8.362 16.078 7.155 38.581 0.781 40.375 60.643 30.283 7.3 9.602 89.238 -6.527 -42.399 93.887 254.279 76.695 44.321 49.916 -92.497 107.938 -2.785 -0.008 -0.026 -8.333 5.781 17.919 12.067 -12.467 48.607 163.158 17.265 percent, reflecting the bidders’ preference of short-term bills to long-term bills.
Table 4.15: Results of Treasury Bills Auction
Source: NBE

National Bank of Ethiopia 2009/10 annual report 58 Value in Millions of Birr Fig V.10:Treasury Bills Auction Result
90000.00 3.00
80000.00
70000.00
2.50
60000.00
50000.00
40000.00
30000.00
2.00
1.50
1.00
20000.00
10000.00
0.50
0.00
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/082008/09 2009/10 Yea r 0.00 Demand Supply Average Weighted Yield Source: NBE
4.5.2. Bonds Market
In recent years, following the strong growth in economic activities and real income, there was strong demand for corporate bonds. As a result, corporate bond holdings of the CBE increased to Birr 27.7 billion in 2009/10 from Birr 19.3 billion a year ago. During the year, corporate bond issued by public institutions and regional governments reached Birr 10.9 billion reflecting 77 percent growth over last year.

National Bank of Ethiopia 2009/10 annual report 59 Particulars Twelve Months Percentage Change 2008/09 2009/10 A B B/A

Corporate Bond Purchases by Clients
EEPCO
Regional governments
Development Bank of Ethiopia Private Sector
Redemption of Bonds by Clients
Public Enterprises Regional governments Development Bank of Ethiopia Private Sector
Outstanding Bonds by Clients
Public Enterprises Regional governments Development Bank of Ethiopia Private Sector 6,135.0 3,000.0 2,835.0 300.0 0.0 75.2 0.0 31.3 43.9 0.0 19,310.6 11,600.0 5,957.7 1,752.9 0.0 10,860.0 5,000.0 3,560.0 2,300.0 0.0 1,235.7 0.0 1,116.4 119.3 0.0 27,727.3 16,600.0 7,032.7 4,094.6 0.0 77.0 66.7 25.6 666.7 - 1,543.3 #DIV/0! - 171.7 - 43.6 43.1 18.0 133.6 -
4.16 Disbursement, Redemption and Outstanding of Coupon and Corporate Bond
Purchases by the Banking System (In Millions of Birr) Source: Commercial Banks
4.5.3. Inter-bank Money Market
The interbank money market was not active in Ethiopia due to the existence of excess reserves in the banking system. Accordingly, no inter-bank money market transaction was conducted in 2009/10. Since the introduction of the interbank money market in September 1998, merely twenty-three transactions worth Birr 259.2 million were transacted with interest rates ranging between 7 to 11 percent per year. The maturity period of these loans widely spanned from overnight to 5 years.

2009/10 annual report 60 National Bank of Ethiopia
Table 4. 17: Interbank Money Market Transactions up to June 2008
Amount Borrowed Interest Rate Date of Maturity Borrower Lender (In Thousand Birr) percent Transaction Period Nib International Bank Awash International Bank 7,000.0 11 16/11/00 Overnight Wegagen Bank Commercial Bank of Ethiopia 10,000.0 8 3/1/2001 5 years Nib International Bank ,, 10,000.0 8 3/31/2001 3 months Wegagen Bank ,, 10,000.0 8 3/22/2001 1 year Nib International Bank ,, 3,600.0 8 5/31/2001 6 months Nib International Bank ,, 3,700.0 8 06/31/01 6 months Nib International Bank ,, 778.0 8 30-11-2001 6 months Nib International Bank Bank of Abyssinia 28,999.8 7 31/12/02 3.5 months Nib International Bank Bank of Abyssinia 19,046.9 7 31/01/03 3.5 months Nib International Bank Bank of Abyssinia 20,310.0 7 28/02/03 3.5 months Nib International Bank Bank of Abyssinia 28,987.0 7 31/03/03 3.5 months Nib International Bank Commercial Bank of Ethiopia 25,000.0 7.5 7/7/2003 5.2 months Nib International Bank Bank of Abyssinia 50.1 7.5 26/03/2005 open Nib International Bank Bank of Abyssinia 50.5 7.5 26/03/2005 open Wegagen Bank Awash International Bank 19,744.6 7.5 December, 2006 21/05/07 Wegagen Bank Awash International Bank 19,870.4 7.5 January, 2007 21/05/07 Wegagen Bank Awash International Bank 10,937.2 7.5 February, 2007 21/05/07 Awash International Bank Nib International Bank 30,000.0 7.5 February, 2007 18/08/07 Wegagen Bank Awash International Bank 10,931.4 7.5 March, 2007 21/05/07 Nib International Bank Awash International Bank 142.0 8.5 January, 2008 25/4/08 Nib International Bank Awash International Bank 7.0 8.5 February, 2008 25/04/08 Nib International Bank Awash International Bank 3.0 8.5 March, 2008 25/04/08 Nib International Bank Awash International Bank 17.0 8.5 April,2008 25/04/08 Total/Average - 259,174.8 7.87 - - Source: NBE

National Bank of Ethiopia 2009/10 annual report 61
V. DEVELOPMENTS IN EXTERNAL SECTOR
5.1 Overall Balance of Payments
The overall balance of payments in 2009/10 recorded a surplus of USD 316.6 million, much lower than the USD 513.5 million surplus in the preceding year. Tthe trade deficit in the review period narrowed slightly by 0.2 percent owing to a 38.4 percent growth in merchandise exports against moderate increase (7 percent) in imports. As net private transfers improved slightly in the same period, the current account deficit also narrowed by 21.3 percent over last year and its share in GDP improved to 4.1 percent from 5.1% a year ago.
Table 5. 1. Balance of Payments
(In Millions of USD)

National Bank of Ethiopia 2009/10 annual report 62 Particulars 2007/08 2008/09 2009/10 Percentage Change A B C C/B C/A Trade Balance -5,344.8 -6,279.2 -6,265.8 -0.2 17.2 Exports 1,465.7 1,447.4 2,003.1 38.4 36.7 Imports 6,810.5 7,726.6 8,268.9 7.0 21.4 Net Services 142.3 384.7 456.6 18.7 220.9 Travel 149.8 207.9 224.1 7.8 49.6 Transportation 129.2 223.0 241.3 8.2 86.7 Government (n.i.e.) 134.6 160.4 225.2 40.4 67.4 Investment income 16.6 -34.6 -56.2 62.7 -438.2 Interest 30.0 -10.3 -29.3 185.5 -197.8 Cash (net) 34.1 -8.5 -27.2 219.5 -179.6 Arrears 0.0 - - Dividend -13.4 -24.3 -26.9 10.7 101.3 Other Services -287.9 -172.1 -177.8 3.3 -38.2 Private Transfers 2,388.3 2,706.8 2,709.7 0.1 13.5 Current Account Balance(excl. public transfers) -2814.2 -3187.6 -3193.4 0.2 13.5 Public Transfers 1,312.5 1,551.4 1,905.6 22.8 45.2 Current Account Balance(incl. public transfers) -1,501.7 -1,636.2 -1,287.8 -21.3 -14.2 Non-monetary Capital 1,031.6 1,647.9 1,996.2 21.1 93.5 Long-term (net) 306.4 722.2 1,043.6 44.5 240.6 Disbursements 377.2 781.3 1,118.1 43.1 196.4 Repayments 70.9 59.2 74.5 25.9 5.2 Cash 46.8 42.3 64.7 53.2 38.5 Arrears 0.0 - - Direct Investment (net) 814.6 893.7 956.4 7.0 17.4 Short-term (net) -89.4 32.0 -3.8 -111.8 -95.8 Net Errors & Omissions 219.3 501.8 -458.7 -191.4 -309.1 Overall Balance -250.9 513.5 316.6 -38.3 -226.2 Financing 250.9 -513.5 -316.6 -38.3 -226.2 Reserves (-:increase) 279.1 -494.8 -304.6 -38.4 -209.2 NBE net foreign asset 232.4 -558.7 57.8 -110.3 -75.1 CBs net foreign asset 46.7 63.9 -362.4 -667.6 -876.2 Source: NBE Staff Compilation

National Bank of Ethiopia 2009/10 annual report 63 Particulars 2007/08 2008/09 2009/10 Percentage Change A B C C/B C/A Exports Imports Trade Balance Net Services Net Private Transfers Current Account Deficit (Excluding Official Transfers) Current Account Deficit (Including Official Transfers) 5.5 25.6 -20.1 0.5 9.0 -10.6 -5.7 4.5 24.0 -19.5 1.2 8.4 -9.9 -5.1 6.3 26.5 -20.1 1.4 8.6 -10.1 -4.1 41.3 10.5 3.4 21.2 2.2 2.3 -19.6 14.9 3.3 0.1 169.9 -4.6 -4.6 -27.9 In Million of USD
Table 5.2: Components of External Trade as Percentage of GDP
Source: NBE Staff Compilation Fig. VI.1 Trends in Components of Current Account 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Exports Imports Net Services Private Transfers Source: NBE Staff Computations

National Bank of Ethiopia 2009/10 annual report 64
5.2 Developmentsin Merchandise Trade
Merchandise trade deficit narrowed slightly to USD 6.3 billion in 2009/10 compared to the preceding fiscal year largely due to the significant growth in total exports and moderate increase in total import. As a result, export to GDP ratio rose to 6.3 percent from 4.5 percent.
5.2.1 Exports
Total merchandise exports in 2010/11 amounted to USD 2 billion, showing 38.4 percent surge vis-à-vis the preceding year. The impressive export performance was attributed to the increases in export earning from coffee, gold, chat, flower, live animals, fruit & vegetables, meat & meat products and oilseeds. The receipts from export of coffee rose by 40.6 percent to USD 528.3 million on account of 28.5 and 9.4 percent increases in volume of export and world price respectively. The rise in volume of coffee export resulted presumably from improvements in domestic trading system, revival of world demand and market expansion in Japan. However, the share of coffee in total exports increased slightly to 26.4 percent from 26 percent recorded a year earlier.
Table 5.3 Values of Major Export Items
2007/08 percent share 2008/09 percent share 2009/10 percent share Percentage Change A B C C/B C/A Coffee Oilseeds Leather & Leather products Pulses Meat & Meat Products Fruits & Vegetables Live Animals Chat Gold Flower Others 524.5 218.8 99.2 143.6 20.9 12.8 40.9 108.3 78.8 111.8 106.3 35.8 14.9 6.8 9.8 1.4 0.9 2.8 7.4 5.4 7.6 7.2 375.9 356.1 75.3 90.7 26.6 12.1 52.7 138.7 97.8 130.7 91.3 26.0 24.6 5.2 6.3 1.8 0.8 3.6 9.6 6.8 9.0 6.3 528.3 358.5 56.4 130.1 34.0 31.5 90.7 209.5 281.4 170.2 112.5 26.4 17.9 2.8 6.5 1.7 1.6 4.5 10.5 14.0 8.5 5.6 40.6 0.7 -25.1 43.4 27.9 159.4 72.3 51.0 187.6 30.2 23.2 0.7 63.9 -43.2 -9.4 62.7 145.4 122.1 93.5 257.2 52.3 5.9 Total 1,465.7 100.0 1,447.9 100.0 2,003.1 100.0 38.3 36.7 Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 2009/10 annual report 65 As a result of considerable growth in volume and world price, export proceeds from gold went up sharply to USD 281.4 million in 2009/10 from USD 97.8 million in the previous year. Hence, gold export revenue in total exports accounted for 14 percent compared to 6.8 percent in the preceding year. Earning from export of chat accelerated by 51 percent in 2009/10 to reach USD
209.5 million as a result of 42.1 and 6.3
percent growth in volume and world price, respectively. Thus, its share in total export slightly improved to 10.5 from 9.5 percent a year earlier. Earning from export of pulses jumped by
43.4 percent to USD 130.1 million
wholly due to the increase in volume of exports (63.6 percent) despite the fall in world prices (12.3 percent). Nevertheless, the share of pulses in total exports stood at 6.5 percent, slightly higher than the 6.3 percent last year.. As a result of higher volume of exports and international prices, export revenue from flower increased by 30.2 percent in 2009/10 vis-à-vis the previous year. However, the share of flower export in total export was 8.5 percent, slightly lower than the 9 percent in 2008/09. Despite moderate decline in international price, earning from export of live animals went up by 72.3 percent to USD 90.7 million.147 percent increase in volume of export. However, the share of live animals in total export improved marginally to 4.5 percent from 3.6 percent. Export proceeds from fruit & vegetables in 2009/10 rose a sharply to USD 31.5 million, showing 159.4 percent increase over the preceding year owing to significantly higher volume and world price. Thus, earning from fruit & vegetables accounted for 1.6 percent against 0.8 percent in 2008/09. Similarly, export of meat & meat products fetched USD 34 million, depicting 28 percent growth solely as a result of higher volume in spite of moderate decline in world price. Export of oilseeds, the second important export product, earned USD 358.5 million, growing slightly by 0.7 percent wholly owing to 4.2 percent increase in

National Bank of Ethiopia 2009/10 annual report 66 In Million U S D volume despite the fall in international price (3.4 percent). Consequently, the share of oilseeds in total exports went down to 17.9 percent from 24.6 percent in the preceding fiscal year. Export earnings from leather and leather products fell by 25.1 percent as the volume of exports went down by 60.2 percent in spite of the significant rise in international prices (88 percent). Fig. VI 2 Foreign Exchange Earning From Selected Export Items 600 500 400 300 200 100 0 Coffee Oilseeds Leather and Leather Products Pulses Chat Gold Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 2009/10 annual report 67 Particulars 2007/08 2008/09 2009/10 Percentage Change A B C C/B C/A Coffee Oilseeds Leather and Leather products Pulses Meat & Meat Products Fruits & Vegetables Live Animals Chat Gold Flower 170.7 152.1 14.9 233.0 6.5 39.9 40.0 22.4 0.0038 22.4 134.0 287.0 7.3 138.0 7.5 38.5 36.7 25.4 0.0049 29.2 172.2 299.0 2.9 225.7 10.2 66.3 90.7 36.1 0.0089 36.0 28.5 4.2 -60.2 63.6 36.2 72.4 147.1 42.1 82.9 23.3 0.9 96.6 -80.5 -3.2 57.0 66.2 127.0 61.1 137.1 60.5 Flower 8.5% Fig VI 3. Export Share of Selected Commodities in 2009/10 Others 5.6% Coffee 26.4% Gold 14% Chat 10.5% Pulses 6.5% Leather and Leather Products 2.8% Oilseeds 17.9% Source: NBE Staff Compilation
Table 5.4: Volume of Major Exports
(In Millions of Kg)
Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 2009/10 annual report 68 2007/08 2008/09 2009/10 Percentage Change A B C C/B C/A Coffee Oilseeds Leather and Leather products a Pulses Meat & Meat Products Fruits & Vegetables Live Animals Chat Gold Flower 3.1 1.4 6.7 0.6 3.2 0.3 1.0 4.8 20955.5 5.0 2.8 1.24 10.3 0.7 3.6 0.3 1.4 5.5 20084.1 4.5 3.1 1.20 19.4 0.6 3.3 0.5 1.3 5.8 31574.2 4.7 9.4 -3.4 88.0 -12.3 -6.1 50.5 -6.9 6.3 57.2 5.6 -0.1 -16.6 191.7 -6.5 3.6 47.7 30.7 20.1 50.7 -5.1 In Million Kg Fig. VI.4 Export Volume of Selected Commodities 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 Coffee Oilseeds Leather and Leather Products Pulses Chat Gold (MT) Source: Ethiopian Revenue and Customs Authority
Table 5.5: Unit Value of Major Exports
(In USD per Kg)
Source: Calculated from Tables VI.3 and VI.4

National Bank of Ethiopia 2009/10 annual report 69 USD/Kg Fig. VI. 5 Unit Value of Exports of Selected Commodities 25.0 20.0 15.0 10.0 5.0 0.0 Coffee Oilseed s Leather and Leather Products Pulses Chat Source: NBE Staff Compilation
5.2.2. Imports
In 2009/10, total merchandise import, which showed a 21 percent yearly average growth in the past five years, rose moderately by 7 percent to USD 8.3 billion. Hence, the proportion of import in GDP increased to 26.5 percent from 24 percent in 2008/09. Imports of capital goods surged by 16.6 percent over the previous year and amounted to USD 2.9 billion, presumably due to the expansion of investment activities in various sectors of the economy. Thus, the share of capital goods in total import rose to 35 percent compared to 32 percent last year. Likewise, fuel import bill went up marginally by 4.3 percent to USD 1.3 billion as a result of recovery in international oil prices and increase in volume of oil imports driven by the rising domestic demand. However, the share of fuel in total import bill declined slightly to 16 percent from 16.3 percent recorded in 2008/09. Meanwhile, imports of consumer goods soared by 5.5 percent solely owing to higher imports of durable consumer goods in spite of the marginal drop in non-durable consumer goods. Import of

National Bank of Ethiopia 2009/10 annual report 70 Imports 2007/08 percent share 2008/09 percent share 2009/10 percent share Percentage Change A B C C/B C/A Raw Materials Semi-finished Goods Fertilizers Fuel Petroleum Products Others Capital Goods Transport Agricultural Industrial Consumer Goods Durables Non-durables Miscellaneous 257.8 1,259.7 302.1 1,621.4 1,614.4 7.0 1,907.7 380.9 40.9 1,485.8 1,532.3 476.0 1,056.3 231.8 3.8 18.5 4.4 23.8 23.7 0.1 28.0 5.6 0.6 21.8 22.5 7.0 15.5 3.4 354.2 1,140.1 270.7 1,256.6 1,246.9 9.7 2,474.7 384.2 31.3 2,059.2 2,383.5 674.8 1,708.7 117.4 4.6 14.8 3.5 16.3 16.1 0.1 32.0 5.0 0.4 26.7 30.8 8.7 22.1 1.5 212.4 1,226.5 249.4 1,310.7 1,303.0 7.7 2,886.3 509.8 59.8 2,316.7 2,515.7 865.0 1,650.7 117.3 2.6 14.8 3.0 15.9 15.8 0.1 34.9 6.2 0.7 28.0 30.4 10.5 20.0 1.4 -40.1 7.6 -7.8 4.3 4.5 -20.6 16.6 32.7 91.1 12.5 5.5 28.2 -3.4 -0.1 -17.6 -2.6 -17.4 -19.2 -19.3 10.0 51.3 33.8 46.0 55.9 64.2 81.7 56.3 -49.4 Total Imports 6,810.7 100.0 7,726.6 100.0 8,268.9 100.0 7.0 21.4 car & other vehicles and other durable goods except radio, television and cars’ tyers accounted for the increase in durable consumer goods. However, the share of consumer goods in total imports slightly declined to 30.4 percent from
30.8 percent in the preceding year.
Import of semi-finished goods showed
7.6 percent growth in 2009/10 to reach
USD 1.23 billion largely due to higher import of other semi-finished goods except chemical, fertilizer and textile materials. On the other hand, raw material imports in 2009/10 fell by 40.1 percent compared to the preceding year and constituted 2.6 percent of the total import, down from 4.6 percent in 2008/09.
Table 5.6: Value of Imports by End Use
(In Millions of USD)
Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 2009/10 annual report 71
5.2.3 Direction of Trade
Ethiopia’s merchandise exports have vast markets in Europe, accounting for 41 percent of the total exports during 2009/10. With in Europe, Switzerland was the largest market for about 11.2 percent of Ethiopia’s exports, in particular for coffee, gold and oilseeds. Germany, with a 9.8 percent share in Ethiopia’s total export, was the second most important destination in Europe mainly for coffee, flower and leather and leather products followed by the Netherlands for flower, vegetables, coffee, pulses and oilseeds. Italy was another destination for coffee, leather and leather products and pulses exports during the review period. Asia has also been a potential market for Ethiopian exports and it constituted 31.2 percent of the total export in 2009/10. Of the total export to Asia, about 34.6 percent was shipped to China, 19.6 percent to Saudi Arabia, 12.4 percent to United Arab Emirates (UAE) and 8.4 percent to Israel. Main exports to China include oilseeds, minerals and leather and leather products. Saudi Arabia imported coffee, meat and meat products and oilseeds, while live animals, meat and meat products, oilseeds, pulse and vegetables shipped to the United Arab Emirates (UAE). Meanwhile, about 23 percent of Ethiopia’s exports was to African countries, of which about 79 percent was destined to Somalia, Sudan, and South Africa. Exports to Somalia mainly included chat and live animals while live animals, coffee, spices and pulses went to Sudan. Gold, pulses and coffee had relatively vast market in South Africa.

National Bank of Ethiopia 2009/10 annual report 72 Fig VI.6 Export by Destinations Asia 31.2% Oceania 0.4% Africa 22.9% America 4.5% Europe 41.1% Source: NBE staff compilation

National Bank of Ethiopia 2009/10 annual report 73 The Americas accounted for 4.4 percent of Ethiopia’s total exports of which the United States and Canada constituted 96 percent mainly in importing coffee, oilseeds and textiles and garments. Regarding Ethiopia’s imports by origin, Asian countries exported about 66 percent followed by Europe (20percent), America (7.5 percent) and Africa (3.4 percent). Of the total imports during the review year, the share of China was 17.5 percent, Saudi Arabia 12.6 percent, India
7.7 percent, Japan 5 percent and UAE
4.9 percent. China exported mainly
machinery, metals and electric materials; while Saudi Arabia supplied petroleum products, paper and paper products and chemicals. Petroleum import from Saudi Arabia alone accounted for 61.1 percent of the total import of petroleum in 2009/10. Meanwhile, main imports from India were electrical materials, metals, medical and pharmaceutical products and rubber products. Japan supplied road and motor vehicles, machinery, rubber products and metals. Petroleum, metal, machineries and glass and glassware were the major imports from UAE. Within Europe, Italy, Turkey and Germany accounted for 24.1, 15 and
11.4 percent of the total imports from
the continent, respectively. Italy supplied mainly machinery, road and motor vehicles, medical and pharmaceutical products and grain while metal, machinery and electrical materials were imported from Turkey. Main imports from Germany include machinery, road & motor vehicles and electrical materials. Of the total imports from America, about
98.5 percent was from USA, Brazil and
Canada. Imports included glass and glass ware, machinery, road and motor vehicles, electrical materials, food & grain and tobacco.

National Bank of Ethiopia 2009/10 annual report 74 Fig. VI. 7 Import by Origin Oceania 0% Africa 3% Europe 21% Asia 68% America 8% Source: NBE Staff Compilation

National Bank of Ethiopia 2009/10 annual report 75
5.3 Services and Transfers
5.3.1 Services
In 2009/10, net services account recorded USD 456.6 million inflow, showing a
18.7 percent increase over the preceding
year as a result of higher net receipts from government, transport and travel services. Net receipts from government service peaked up by 40.3 percent while transport and travel services receipts rose by 8.2 and 7.8 percent, respectively possibly due to expansion in tourism conference and air transport services.
5.3.2 Unrequited Transfers
Net private transfers in 2009/10 improved slightly owing to 9.3 and 7.5 percent increment in individual cash and estimated underground private transfers which offset a 3.5 percent decline in NGO transfers.

National Bank of Ethiopia 2009/10 annual report 76
Table 5. 7: Unrequited Transfers
(In Millions of USD)
No. Particulars
2006/07 2007/08 2009/10 Percentage Change A % Share B % Share C % Share C/B C/A 1 1.1 1.2 2. 2.1 2.2 Private Transfers Receipts NGOs Cash Other Food Private individuals Cash In kind Underground Transfers(in kind) Payments Official Transfers Receipts Cash Other Food Payments 2,388.3 2,418.3 638.5 609.7 0.0 28.8 1,779.7 800.0 165.1 814.6 -30.0 1,312.5 1,334.2 1,314.4 0.8 19.0 -21.7 64.5 64.4 17.0 16.2 0.0 0.8 47.4 21.3 4.4 21.7 58.0 35.5 35.6 35.0 0.0 0.5 42.0 2,706.8 2,733.3 921.0 916.9 0.0 4.1 1,812.3 723.2 195.5 893.6 -26.5 1,551.4 1,566.7 1,444.8 0.2 121.7 -15.3 63.6 63.6 21.4 21.3 0.0 0.1 42.1 16.8 4.5 20.8 63.4 36.4 36.4 33.6 0.0 2.8 36.6 2,709.7 2,736.2 888.9 860.5 28.4 0.0 1,847.3 790.3 96.7 960.3 -26.6 1,905.6 1,914.7 1,741.5 0.0 173.2 -9.1 58.7 58.8 19.1 18.5 0.6 0.0 39.7 17.0 2.1 20.6 74.5 41.3 41.2 37.4 0.0 3.7 25.5 0.1 0.1 -3.5 -6.1 - 1.9 9.3 -50.5 7.5 0.3 22.8 22.2 20.5 42.3 -40.4 13.5 13.1 39.2 41.1 - 3.8 -1.2 -41.4 17.9 -11.4 45.2 43.5 32.5 812.1 -58.2 Total Net Transfers 3,700.7 100 4,258.2 100 4,615.3 100 8.4 24.7 Source: Disaster Prevention and Preparedness Agency, MoFED and NBE Net official transfers hiked by 22.8 percent owing to increased grants from both international financial institutions and bilateral donors. Cash component of official transfers rose by 20.5 percent to USD 1.74 billion while food aid amounted to USD 173.2 million compared to USD 121.7 million in the previous year.
5.4. Current Account
As a result of growth in net services and public transfers, the current account deficit narrowed by 21.3 percent to USD 1.3 billion in 2009/10 from USD 1.64 billion last fiscal year.
5.5 Capital Account
In 2009/10, the balance in capital account recorded a surplus of USD 2 billion, about
21.1 percent higher than last year owing to
the 43 percent increase in official long term

National Bank of Ethiopia 2009/10 annual report 77 net capital inflows and moderate growth in foreign direct investment.
5.6 Changes in Reserve Position
Net foreign assets of the banking system at end 2009/10 recorded a build-up of USD
316.6 million, solely due to USD 362.4
million increase in the net foreign assets of commercial banks. Hence, the gross international reserves of NBE was adequate to cover 2.2 months of imports of goods and non-factor services.
5.7 External Debt
External debt stock of the country at end 2009/10 amounted to USD 5.6 billion, depicting about 29.1 percent increase over the 2008/09 position. This was largely attributed to higher debt owed to international financial institutions (USD 2.7 billion) and bilateral creditors (USD 1.4 billion). Hence, the country’s external debt stock to GDP ratio rose to 17.8 percent from 13.5 percent in 2008/09. Debt stock to total receipts from export of goods and non-factor services ratio also rose slightly to 1.1 percent in 2009/10 from 1 percent a year ago. Similarly, commercial debt stock, which accounted for 26.3 percent of the total debt stock, showed a 31.2 percent increment to USD 1.5 billion by end 2009/10. Of the total debt stock, 48.6 percent was owed to multilateral and 25.1 percent to bilateral creditors. The country’s external debt burden as measured by debt services to export of goods and services ratio marginally increased to 2.3 percent from 2 percent in the same period last year.

National Bank of Ethiopia 2009/10 annual report 78 Particulars 2007/08 2008/09 2009/10 Percentage Change A B C C/B C/A Debt Outstanding Lender Total 2767.1 4364.8 5634.0 29.1 103.6 Multilateral 1540.5 2032.3 2738.7 34.8 77.8 Bilateral 951.5 1204.3 1414.9 17.5 48.7 Commercial 275.0 1128.2 1480.4 31.2 438.2 Drawing by Lender 394.8 650.4 842.4 29.5 113.4 Lender Total 394.8 650.4 842.4 29.5 113.4 Drawing by Sector 394.8 650.4 842.4 29.5 113.4 Sector Total 394.8 650.4 842.4 29.5 113.4 Debt Service 76.8 67.6 94.8 40.2 23.4 Principal repayments 46.8 42.1 64.7 53.8 38.3 Interest payments 30.0 25.5 30.0 17.8 0.1 Debt stock to GDP ratio (in percent ) 10.4 13.5 17.8 31.8 71.2 Debt stock to export of goods and non-factor services 0.9 1.0 1.1 7.9 19.9 Receipts from goods and non-factor services 3063.2 3381.4 4047.0 19.7 32.1 Debt service ratio ( percent )1/ 2.5 2.0 2.3 17.2 -6.6 Arrears 0.0 - - Principal 0.0 - - Interest 0.0 - - Relief 28.2 18.7 12.0 -36.0 -57.6 Principal 24.1 16.9 9.8 -42.2 -59.5 Interest 4.1 1.8 2.2 23.0 -46.6
Table 5.8 External Public Debt
(In Million of USD)
Source: MoFED
1/ Ratio of debt service to receipts from export of goods and non-factor services Note: Outstanding as at end period. 5.8.Developments in Foreign Exchange Markets
5.8.1. Developments in Nominal Exchange Rate
In the inter-bank market, the weighted average exchange rate of the Birr in 2009/10 weakened showing a year-onyear depreciation rate of 23.7 percent to Birr 12.89 USD. This development is expected to improve external competitiveness of the country.

National Bank of Ethiopia 2009/10 annual report 79 Similarly, the Birr in the parallel market depreciated on average by 15.8 percent annually in 2009/10 to Birr 13.68 USD. Consequently, the spread between the official and parallel market rates went down to 6.1 percent from 13.3 percent a year earlier.
Table 5.9 Inter-Bank and Parallel Forex Market Exchange Rates
Period
Amount Traded in Millions of USD Average Weighted Rate Number of Trades Total O/w among CBs Total O/w among CBs Average Parallel Market Rate 2007/8 Qtr. I Qtr. II Qtr. III Qtr. IV 9.2441 9.0344 9.0704 9.3192 9.5526 114.4 41.1 38.4 28.9 6.1 17.9 12.6 5.4 0.00 0.00 1694 294 372 512 516 47.0 28.0 19.0 0.0 0.0 9.5569 9.2917 9.3968 9.9822 2008/09 Qtr. I Qtr. II Qtr. III Qtr. IV 10.4205 9.6602 9.8670 10.9521 11.2028 18.4 6.3 6.0 3.0 3.1 0.0 1818.0 483.0 531.0 387.0 417.0 0.0 11.8102 10.2623 10.7540 12.8163 13.4083 2009/10 Qtr. I Qtr. II Qtr. III Qtr. IV 12.8909 12.3746 12.5851 13.1342 13.4697 12.6 3.3 3.3 3.0 3.1 0.0 252.0 65.0 66.0 60.0 61.0 0.0 13.6806 13.2933 13.3933 13.8495 14.1863 Source: Banking and Foreign Exchange Directorate, NBE Mirroring the depreciation of exchange rate of the inter-bank market, the average buying and selling rates of forex bureaux depreciated by 16 percent each in 2009/10.

National Bank of Ethiopia 2009/10 annual report 80
Table 5.10: Mid Market End Period Rates
(Birr per Unit of Currency) Currency 2007/08 2008/09 2009/10 Percentage Change A B C C/B C/A USD Pound Sterling Swedish Korner Djibouti Frank Swiss Frank Saudi Riyal UAE Dirham Canadian Dollar Japanese Yen Euro SDR 9.0746 18.1673 1.3209 0.0511 7.3615 2.4195 2.4706 8.569 0.0735 12.1989 13.7419 9.6562 19.2476 1.6194 0.0543 9.4873 2.5749 2.6287 9.5662 0.0911 15.2471 15.7388 13.59975 20.47035 1.7395 0.0781 12.4986 3.62605 3.70265 12.95095 0.153254 16.57405 20.1222055 40.8 6.4 7.4 43.7 31.7 40.8 40.9 35.4 68.2 8.7 27.9 49.9 12.7 31.7 52.7 69.8 49.9 49.9 51.1 108.5 35.9 46.4 Source: NBE The Birr also depreciated with respect to major international currencies. For instance, it depreciated against Japanese Yen (68.2 percent), USD (40.8 percent), followed by Swiss Frank (31.7 percent), SDR (27.9 percent) and Euro ( 8.7 percent) mirroring the depreciation of USD against major international currencies.
5.8.2. Movements in Real Effective
Exchange Rate
The real effective exchange rate which appreciated in the last four years, tended to depreciate in 2009/10. Accordingly, the real effective exchange rate depreciated by 23 percent in 2009/10 against 35.5 percent appreciation in the preceding year. This was due to the decline in domestic inflation to 2.8 percent coupled with the
24.6 percent depreciation in nominal
effective exchange rate.

National Bank of Ethiopia 2009/10 annual report 81
Table 5. 11: Trends in Real and Nominal Effective Exchange Rates
Fiscal Year REERI NEERI Percentage Change REER NEER 2003/04 98.5 89.3 -0.5 -4.6 2004/05 94.0 83.1 -4.5 -6.9 2005/06 102.9 80.9 9.4 -2.7 2006/07 121.3 77.6 17.9 -4.1 2007/08 136.3 72.4 12.4 -6.7 2008/09 184.7 76.1 35.5 5.2 2009/10 142.4 57.4 -22.9 -24.6 Source: NBE Staff Compilation

Regarding methodology of constructing effective exchange rate indices, see annual report of NBE, 2004-2005, P. 66
An increase in REERI and NEERI indicates appreciation and vice versa.
Where: REERI = Real Effective Exchange Rate Index NEERI = Nominal Effective Exchange Rate Index

National Bank of Ethiopia 2009/10 annual report 82
5.8.3 Foreign Exchange Transactions
In the inter-bank foreign exchange market, USD 12.6 million was traded during 2009/10. This was lower than the USD 18.4 million transactions in the preceding year presumably due to the surge in export revenues from merchandise goods and slowdown in domestic demand for import. The transactions were wholly made between the NBE and commercial banks. Meanwhile, foreign exchange purchase of forex bureau of commercial banks surged by
50.6 percent over the preceding year owing
to expansion in conference tourism in the country. On the other hand, their sales of foreign exchange fell by 17 percent likely due to lower foreign exchange demand by travelers as reflected in the decline of travel service payments.

National Bank of Ethiopia 2009/10 annual report 83 Commercial Banks 2007/08 2008/09 2009/10 Percentage Change A B C D E F E/C F/D Purchases Sales Purchases Sales Purchases Sales Purchases Sales Commercial Bank of Ethiopia 31.0 18.2 44.8 11.7 40.6 0.2 -9.3 -98.3 Bank of Abyssinia 3.7 4.7 3.5 4.2 3.0 4.2 -15.1 1.2 Dashen Bank 13.3 8.4 16.9 17.6 13.6 20.6 -19.1 16.9 Awash International Bank 2.5 2.5 1.9 6.7 9.0 6.0 361.0 -11.0 Construction and Business Bank 1.0 4.3 1.4 0.5 1.0 0.2 -32.2 -68.9 Wegagen Bank 6.8 4.6 7.7 6.4 11.8 3.4 52.4 -47.1 United Bank 10.3 5.2 13.1 5.5 30.4 7.9 132.5 44.1 Nib International Bank 28.8 2.2 53.6 6.9 97.4 5.1 81.9 -26.0 Lion International Bank 0.0 0.0 1.4 0.1 7.9 1.0 - - Oromiya Intenational Bank 0.0 2.1 0.2 - - Zemen Bank 0.0 0.0 0.1 0.0 0.5 0.7 - - Cooperative Bank of Oromia 0.0 0.1 - - Buna international Bank 0.0 0.2 0.1 - - Total 97.5 50.1 144.5 59.7 217.5 49.5 50.6 -17.0 Average Exchange Rate 9.2419 9.4255 11.1113 11.3107 12.8763 13.1343 15.9 16.1
Table 5.12: Foreign Exchange Transactions by Commercial Banks
(In Millions of USD)
Source: NBE

National Bank of Ethiopia 2009/10 annual report 84 Fiscal Year PD/GDP IP/RR Debt/GDP R (Debt) R (GDP) Exp/GDP Rev/GDP R (OR) 1996/97 4.1 11.7 29.8 3.4 24.2 19 8.1 1997/98 -1.5 9.9 24.7 7.9 -3.9 20.7 15.4 2.8 1998/99 -4.0 10.1 15.4 11.9 5.9 24.7 16.0 8.3 1999/00 -6.4 11.8 25.4 61.1 13.4 26.1 14.4 8.3 2000/01 -2.2 10.6 21.4 -7.1 2.1 23.4 15.1 7.1 2001/02 -10.7 9.7 23.2 8.2 -2.2 32.6 16.5 2.3 2002/03 -5.2 10.9 25.6 10.7 10.3 27.9 15.2 7.1 2003/04 -1.8 7.8 26.6 22.6 18.0 23.7 16.1 24.8 2004/05 -3.9 6.5 22.2 2.3 22.9 19.3 14.6 12 2005/06 -5.5 5.4 20.1 12.2 23.7 22.3 14.8 25.1 2006/07 -3.0 5.5 17.6 13.5 29.8 20.8 12.7 11.6 2007/08 -2.1 3.8 15.6 27.1 42.9 19.1 12.1 36.7 2008/09 -0.9 3.2 14.8 28.7 35.1 17.2 12.2 34.8 2009/10 -1.3 2.9 11.9 2.3 14.3 18.6 14.1 34.1
VI. GENERAL GOVERNMENT FINANCE
6.1. General
General government revenue (including grants) rose 21.3 percent in 2009/10. The ratio of revenue to GDP reached
14.1 percent slightly higher than 12.2
percent a year earlier. Meanwhile, general government expenditure increased 25.3 percent to Birr 71.3 billion. Its ratio to GDP also rose to 18.6 percent compared to 17.2 percent last year. Hence, the overall fiscal deficit (excluding grants) narrowed to 4.6 percent of GDP from 5.3 percent a year ago (Table6.1).
Table 6.1: Measuring Fiscal Sustainability (In percent )
Source: Staff computation Definitions: PD = Primary Deficit IP/RR= Share of Iinterest Payments in Recurrent Revenue Debt/GDP=Ratio of Domestic Debt to GDP R (Debt) = Growth Rate of Domestic Debt R (GDP) = Growth Rate of GDP at Current Market Price Exp/GDP=Ratio of General Government Expenditure to GDP Rev/GDP= Ratio of General Government Revenue to GDP R (OR) = Growth Rate of Ordinary Revenue Note: Starting from 1997/98; the figure was based on revised GDP data

National Bank of Ethiopia 2009/10 annual report 85
6.2. Revenue and Grants
General government revenue, including grants, depicted a 21.3 percent surge to Birr 66.2 billion (or 17.3 percent of GDP) on annual basis as a result of improved tax administration and economic growth. Of the total domestic revenue, about 80.4 percent was generated from taxes, and the rest from non-taxes. Tax revenue rose 49.4 percent in the fiscal year owing to a 51.2 percent growth in direct taxes, which constitute income and profit taxes as well as urban and rural land use fees. Income and profit taxes alone accounted for 94.1 percent of the direct taxes. The share of rural land use fee, however, was merely
1.8 percent. Revenue from indirect taxes
was Birr 28.4 billion and its share in total tax revenue reached 65.6 percent. About 17.7 percent of the indirect tax revenue was generated through import duties whose share grew by about 49.7 percentage points over last year. Non-tax revenue reached Birr 10.5 billion showing a 5.6 percent decline largely due to lower revenue from charges and fees, government investment income and property sales. External grants also showed a 14.4 percent decrease compared to last year. All in all, the yearly performance of total revenue, including grants, was about
96.2 percent of annual budget.

National Bank of Ethiopia 2009/10 annual report 86 In million Birr Fig. 7.1 Trend of General Government Revenue by Component 70000 60000 50000 40000 30000 20000 10000 0 Fiscal Year Total Revenue and Grants Tax Revenue Direct tax revenue Indirect tax revenue Non-tax revenue Grants

National Bank of Ethiopia 2009/10 annual report 87 Particulars 2008/09 2009/10 Percentage Change Performance Rate percentage [A] [B] [C] share [C/A] Pre. Act Revised Budget Pre. Act [C/B] Total Revenue and Grants 54,628 68,875 66,237 21.3 96.2 - Domestic Revenue 1/ 40,174 52,728 53,861 34.1 102.1 100 Tax Revenue 28,998 39,499 43,315 49.4 109.7 80.4

Direct Tax Revenue 9,859 14,052 14,903 51.2 106.1 27.7
1.1 Income and Profit Taxes 9,289 12,721 14,027 51 110.3 26
Personal 3,530 4,137 4,391 24.4 106.2 8.2 Business 4,327 6,924 7,391 70.8 106.8 13.7 Others 2/ 1,432 1,661 2,245 56.9 135.2 4.2
1.2 Rural Land Use Fee 239 232 270 13 116.2 0.5
1.3 Urban Land Use Fee 331 1,099 606 83.1 55.2 1.1
Indirect Taxes 19,139 25,447 28,412 48.5 111.7 52.7
2.1 Domestic Taxes 7,325 9,581 10,727 46.4 112 19.9
2.2 Foreign Trade Taxes 11,814 15,866 17,685 49.7 111.5 32.8
Import 11,814 15,866 17,685 49.7 111.5 32.8 Export - - -
Non-Tax Revenue 11,176 13,229 10,546 -5.6 79.7 19.6
3.1 Charges and Fees 554 468 489 -11.7 104.4 0.9
3.2 Govt. Invt. Income 3/ 7,277 9,440 6,979 -4.1 73.9 13
3.3 Reimb. And Property Sales 940 85 108 -88.5 126.3 0.2
3.4 Sales of Goods & Services 878 1,078 1,032 17.6 95.8 1.9
3.5 Others 4/ 1,527 2,158 1,938 27 89.9 3.6
Grants 14,454 16,147 12,376 -14.4 76.6 -
Table 6.2: Summary of General Government Revenue by Component
(In Millions of Birr)
Source: MoFED
1/ It does not include privatization proceeds 2/ Others include rental income tax, with holding income tax on imports, interest income tax, capital gains tax, agricultural income and other incomes 3/Gov. Investment income includes : Residual surplus, capital charge, interest payments and state dividend 4/ Other extra ordinary, miscellaneous, pension contribution and other revenue

National Bank of Ethiopia 2009/10 annual report 88
6.3 Expenditure
General government expenditure was
23.5 percent higher than the same
period of last fiscal year due to significant growths in all of its components. Its share in GDP slightly went up from 17.2 percent in 2008/09 to
18.6 percent in the review year.
Recurrent expenditure went up by 17.8 percent over last fiscal year. About 91.5 percent of the current expenditure went to finance economic, social and general services. It accounted for 44.9 percent of the total expenditure and its ratio to GDP was 8.4 percent. Capital expenditure rose to Birr 39.3 billion from Birr 30.6 billion of a year earlier on account of higher spending on all its components. About 94.2 percent of the capital spending was for poverty related programs such as education, health and food security. Its share in GDP stood at about 10.3 percent in 2009/10. In summary, expenditure performance rate was 94.5 percent of the annual budget.

National Bank of Ethiopia 2009/10 annual report 89 Particulars 2008/09 2009/10 Percentage Change Performance Rate Percentage [A] [B] [C] share Pre actual [C/A] Revised Budget Pre actual [C/B] [C/B] Total Expenditure 57,775 75,508 71,334 23.5 94.5 100

Current Expenditure 27,176 34,935 32,012 17.8 91.6 44.9
General Services 11,261 11,001 12,864 14.2 116.9 18.0 Economic Services 3,829 4,038 4,064 6.1 100.6 5.7 Social Services 10,249 12,778 12,349 20.5 96.6 17.3 Interest and Charges 1,286 2,173 1,587 23.4 73.1 2.2 External Assistance1* 341 901 631 85.6 70 0.9 Others (miscellaneous) 210 4,045 517 146.2 12.8 0.7
Capital Expenditure 30,599 40,573 39,322 28.5 96.9 55.1
Economic Development 21,812 27,474 27,240 24.9 99.1 38.2 Social Development 7,068 10,942 9,793 38.6 89.5 13.7 General Development 1,719 2,157 2,289 33.2 106.1 3.2 4 Special programs 0
Table 6.3: Summary of General Government Expenditure
(In Millions of Birr ) Source: MoFED

National Bank of Ethiopia 2009/10 annual report 90 50 40 30 In millions of Birr Fig. 7.2: Trends in General Government Expenditure by Component 80000 70000 60000 20000 10000 0 Fiscal Year Total Expenditure Current Expenditure Capital Expenditure Source: MoFED

National Bank of Ethiopia 2009/10 annual report 91 In Percent of GDP 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Fig. 7.3 Trends in General Government Expenditure and Revenue (% of GDP) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Fiscal Year Expenditure/GDP Revenue/GDP Source MoFED

National Bank of Ethiopia 2009/10 annual report 92
6.4. Deficit Financing
During the review year, the overall fiscal balance (including grants) showed a deficit of Birr 5.1 billion, which was higher than Birr 3.1 billion compared to last year. The budget deficit was financed by net external borrowing, net domestic borrowing and privatization receipts.

National Bank of Ethiopia 2009/10 annual report 93 Particulars 2008/09 2009/10 Percenta ge Change Perform ance Rate [A] [B] [C] Pre. Act [C/B]] Revised Budget Pre. Act [C/A] Revenue and Grants 54,628.0 68,875 66,237.4 21.3 96.2 Revenue 40,174.0 52,728 53,861.3 34.1 102.1 Grants 14,454.0 16,147 12,376.1 (14.4) 76.6 Total Expenditure 57,775.0 75,508 71,334.8 23.5 94.5 Current Expenditure 27,176.0 34,935 32,012.4 17.8 91.6 Capital Expenditure 30,599.0 40,573 39,322.4 28.5 96.9 Special Programs - - - - Overall Surplus/ Deficit (Including Grants) (3,147.0) (6,633.0) (5,097.4) 62.0 76.8 (Excluding Grants) (17,601.0) (22,780.0) (17,473.5) (0.7) 76.7 Total Financing 3,147.0 6,633.0 5,097.4 62.0 76.8 Net External Borrowings 3,176.0 3,446.0 4,131.3 30.1 119.9 Gross Borrowing 3,368.0 3,781.0 4,446.1 32.0 117.6 o/w Special Programs - - Amortization Paid 371.9 454.0 458.5 23.3 101.0 HIPC relief & MDRI 180.6 119.0 143.7 (20.4) 120.8 Net Domestic Borrowings (417.0) 2,787.0 1,757.7 (521.5) 63.1 Banking System (857.0) 2,787.0 1,382.4 (261.5) 49.6 Non-Banking Systems 440.0 - 375.3 (14.7) Privatization Receipts 472.0 400.0 697.3 47.7 174.3 Others and Residuals (-84) - (1,488.9)
Table 6.4: Summary of General Government Finance
(In Millions of Birr)
Source: MoFED

National Bank of Ethiopia 2009/10 annual report 94
VII. INVESTMENT
During 1992/93-2009/10 a total of 50,099 investment projects with an aggregate capital of Birr 829.2 billion were licensed by the Ethiopian Investment Agency and Regional Investment Offices. The shares of domestic, foreign and public sector in approved investment projects were 84, 15.9 and 0.2 percent, respectively. Of the total projects, about 11.4 percent have become operational. The rest were in implementation and pre-implementation stage. In terms of investment capital, Birr 382 billion originated from domestic investors, Birr 328.8 billion from foreign investors and Birr 118.3 billion from public sector. In 2009/10 alone, 6,496 investment projects with total capital outlay of Birr 96.4 billion were licensed. Domestic private investment projects licensed in the review period accounted for 78.2 percent and foreign projects 12.4 percent; the rest being public projects. With regard to investment capital, the share of foreign projects was Birr 55.2 billion or
57.2 percent, followed by domestic
investment projects with Birr 40.9 billion (or
42.4 percent). The investment capital of the
3 public projects was Birr 393.5 million. Upon commencement of operation, the approved investment projects are expected to create job opportunities for 224,633 permanent and 488,330 casual workers (Table 7.2).

National Bank of Ethiopia 2009/10 annual report 95 Fiscal Year Domestic projects Foreign Projects Public Projects Total Projects No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital 1992/93 542 3,750.0 3 233 0 0.00 545 3,983.0 1993/94 521 2,926.0 4 438 1 57.00 526 3,421.0 1994/95 684 4,794.0 7 505 2 39.00 693 5,338.0 1995/96 897 6,050.0 10 434 1 6.00 908 6,490.0 1996/97 752 4,447.0 42 2,268 1 7.00 795 6,722.0 1997/98 816 5,819.0 81 4,106 1 14.00 898 9,939.0 1998/99 674 3,765.0 30 1,380 9 4,915.00 713 10,060.0 1999/00 561 6,740.0 54 1,627 9 5,760.00 624 14,127.0 2000/01 635 5,675.7 45 2,923 7 257.00 687 8,856.0 2001/02 756 6,117.3 35 1,474 10 1,598.80 801 9,190.2 2002/03 1,127 9,362.9 84 3,369 6 706.11 1,217 13,437.9 2003/04 1,862 12,177.7 347 7,205 16 1,837.04 2,225 21,220.0 2004/05 2,240 19,571.7 622 15,405 10 1,486.48 2,872 36,463.3 2005/06 5,100 41,841.1 753 19,980 6 18,215.08 5,859 80,036.3 2006/07 5,322 46,630.1 1,150 46,949 0 0.00 6,472 93,579.0 2007/08 7,307 77,868.2 1,651 92,249 3 261.56 8,961 170,378.5 2008/09 7,184 83,630.2 1,613 73,111 10 82,783.52 8,807 239,524.8 2009/10 5,080 40,852.2 1,413 55,169 3 393.89 6,496 96,415.4 Cumulative 42,060 382,018 7,944 328,826 95 118,337 50,099 829,181.3 Average Annual 2,337 21,223 441 18,268 5 6,574 2,783 46,066
Table 7.1: Number and Investment Capital of Approved Projects by Ownership since 1992/93
(Investment capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 2009/10 annual report 96 9000 8500 8000 7500 7000 6500 6000 5500 5000 In Millions of Birr Number of invest ment Projects Fig 1 Approved investment projects by source 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Year Domestic Foreign Public Total Fig 2 Capital of Approved Investment Projects by Source 250000 240000 230000 220000 210000 200000 190000 180000 170000 160000 150000 140000 130000 120000 110000 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Year Domestic Foreign Public Total

National Bank of Ethiopia 2009/10 annual report 97 2007/08 2008/09 2009/10 Percentage change A B C C/A C/B

Total Investment
Number 8,961 8,807 6,496 -27.5 -26.2 Capital 170,379 239,525 96,415 -43.4 -59.7 Permanent Workers 592,188 614,172 224,633 -62.1 -63.4 Casual Workers 1,148,119 1,166,468 488,330 -57.5 -58.1
Total Private
Number 8,958 8,797 6,493 -27.5 -26.2 Capital 170,117 156,741 96,022 -43.6 -38.7 Permanent Workers 592,117 405,296 223,161 -62.3 -44.9 Casual Workers 1,148,084 868,166 488,162 -57.5 -43.8
Domestic
Number 7,307 7,184 5,080 -30.5 -29.3 Capital 77,868 83,630 40,852 -47.5 -51.2 Permanent Workers 263,205 196,420 152,283 -42.1 -22.5 Casual Workers 646,209 569,864 311,185 -51.8 -45.4
Foreign
Number 1,651 1,613 1,413 -14.4 -12.4 Capital 92,249 73,111 55,169 -40.2 -24.5 Permanent Workers 328,912 208,876 70,878 -78.5 -66.1 Casual Workers 501,875 298,302 176,977 -64.7 -40.7 5.Public Number 3 10 3 0.0 -70.0 Capital 262 82,784 394 50.6 -99.5 Permanent Workers 71 208,876 1,472 1973.2 -99.3 Casual Workers 35 298,302 168 380.0 -99.9
Table 7.2 Number, Capital and Expected Job Opportunities
(Capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 2009/10 annual report 98 Sectors 2007/08 2008/09 2009/10 Percentage Share to Total in 2009/10 No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital Manufacturing 1,998 64,473.4 1,804 58,351.1 1,433 35,583 22.1 36.9 Agriculture, hunting and forestry 2,133 36,980.4 2,455 47153.7 1,342 21,625 20.7 22.4 Real estate, renting and Business activities 1,780 40,428.5 1506 21,489.7 1,155 11,617 17.8 12.0 Hotel and restaurants 1,339 17,564.7 1091 10,466.32 617 10,463 9.5 10.9 Education 324 1,563 249 5,664.0 181 1,464 2.8 1.5 Health and social work 175 1,516.3 155 2,255.2 99 2,519 1.5 2.6 Construction 582 3,173.5 826 81,162.7 942 9,924 14.5 10.3 Construction Machinery Leasing - - 0 0.00 0.00 Wholesale, retail trade and repair service 268 797.7 242 2,712.6 154 893 2.4 0.9 Transport, storage and communication 184 483.5 346 1,510.4 477 1,596 7.4 1.7 Fishing 2 3.9 7 100.2 8 19 0.1 0.02 Mining and quarying 38 516.2 25 317.8 9 358 0.1 0.4 Electricity, gas, steam and water supply 4 2,486.7 12 7,825.1 4 33 0.1 0.03 Public administration and defense; compulsory social security 1 8.3 0 0.00 0.00 0.0 0.00 Other community, social and personal service activities 133 382.6 89 515.7 75 321 1.2 0.3 Grand Total 8,961 170,378.5 8,807 239,525.0 6,496 96,415.0 100 100
Table 7.3 Number and Capital of Investment Projects Approved by Sector
(Capital in millions of Birr)

National Bank of Ethiopia 2009/10 annual report 99
7.1 Investment by Sector
Concerning sectoral distribution, about 22.1 percent of the approved projects were in manufacturing; 20.7 percent in agriculture, hunting and forestry;
17.8 percent in real estate,
renting and business activities;
14.5 percent in construction and
9.5 percent in hotel and
restaurants.
In terms of approved investment capital, manufacturing accounted for 36.9 percent followed by agriculture, hunting and forestry (22.4 percent), and real estate, renting and business activities (12.1 percent). Fig. 3 Distribution of Investment Projects by Sector in 2009/10 Transport, storage and communication 7.3 percent Wholesale, retail trade and repair service
2.4 percent
Manufacturing
22.1 percent
Construction
14.5 percent
Agriculture, hunting and Forestry
20.7 percent
Real estate, renting and Business activities
17.8 percent
Education
2.8 percent
Hotel and restaurants
9.5 percent

National Bank of Ethiopia 2009/10 annual report 100
7.2 Distribution by Region
The regional distribution of the approved investment projects depicted that Addis Ababa attracted 2,902 projects with Birr
29.2 billion investment capital, followed
by Oromia 1,558 projects, with Birr 20.7 billion, Amhara 743 projects with Birr
17.4 billion; Tigray 626 projects with
Birr 7.2 billion capital.
Table 7.4: Number and Capital of Approved Projects by Region
(Capital in millions Birr) Regions 2007/08 2008/09 2009/10 percent ge share to Total No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital Tigray 270 3,999.1 543 10862.8 626 7,224 9.6 7.5 Afar 20 390.4 46 4880 32 1,307 0.5 1.4 Amhara 1298 12,267.5 1,425 12167.2 743 17,371 11.4 18.02 Oromia 2977 70,776.4 2,689 63572.5 1,558 20,739 24 21.5 Somali 39 188.5 11 55.7 58 345 0.9 0.4 BenishangulGumuz 152 677.7 182 643.9 111 1,389 1.7 1.4 SNNPR 975 10,228.7 543 4487.8 163 2,020 2.5 2.1 Gambella 34 349.2 132 681.04 11 2,675 0.2 2.8 Harari 22 57.4 2 7 0.03 0.01 Addis Ababa 2621 47,388.6 2,773 120471.3 2,902 29,195 44.7 30.3 Dire Dawa 248 3,689.5 190 8078.9 172 1,455 2.6 1.5 Multiregional Projects 305 20,365.5 273 13623.4 118 12,689 1.8 13.2 Grand Total 8961 170,378.5 8,807 239,524.8 6,496.00 96,415.44 100.00 100.00 Source: Ethiopian Investment Agency

National Bank of Ethiopia 2009/10 annual report 101
VIII. INTERNATIONAL DEVELOPMENTS
8.1. International Economic Developments
8.1.1. Overview of World Economy
4
Global activity returned to positive territory in the second quarter of 2009 as the fiscal and monetary policy measures put in place in many countries gained additional traction and, together with measures aimed at stabilizing the financial sector, contributed to the improvement of financial market conditions and the reduction of uncertainty, and led to some initial reversal in the confidence losses experienced by economic agents. The global recovery gained pace in the second half of 2009 and GDP growth returned to positive territory in the vast majority and of countries in the third quarter of the year. Global manufacturing activity was the key driver of the economic recovery, although, after some faltering, activity in the services sector also gained traction. One major feature of the recovery phase is the different speed 4 Excerpted from European Central Bank Annual Report, 2009 at which it is taking place across countries, a development which possibly reflects, among other factors, the different nature of the policy measures adopted in the various countries, as well as the different strength of each country’s fundamentals. The emergence of a crosscountry divergence in the recovery phase contrasts with the high synchronization exhibited during the downturn, possibly highlighting the extent to which the financial turbulence contributed to the amplification of real disturbances. It is also worth noting that activity is recovering at a much faster pace in emerging economies, which had limited direct exposure to the financial crisis. Economic activity was weak in the United States and in 2009 as a whole, the economy contracted at a rate of 2.4 percent, compared with growth of 0.4 percent in 2008. Real GDP continued to post consecutive negative quarterly growth rates in the first half of 2009, following the sharp downturn in the second half of the previous year.

National Bank of Ethiopia 2009/10 annual report 102 However, a gradual stabilization in financial market conditions, sizeable fiscal and monetary stimuli and a turn in the inventory cycle in the course of the year led to a return to positive economic growth in the second half of 2009. Private domestic spending remained subdued in the first half of 2009 in the context of tight credit conditions, the efforts of households to rebuild their net wealth and scale down debt accumulated over previous years and deteriorating labour market conditions; over 8.4 million jobs were lost in 2008 and 2009. Government stimulus measures temporarily supported private demand, particularly in the auto and housing sectors. Businesses continued to cut back on fixed investment amid tight lending conditions, low capacity utilization and the uncertain economic outlook. Housing market activity started to pick up in mid-2009 with the support of government stimulus measures, but the recovery continued to be held back by substantial headwinds. Export performance was weak in early 2009 owing to a downturn in foreign economic activity. Nevertheless, foreign trade contributed positively to growth as imports fell more sharply than exports. However, both exports and imports recovered in the second half of the year.
Table 8.1Overview of World Economic Outlook and Projection
(Annual Percentage Change) 2008 2009 Projection 2010 2011 World Output 2.8 -0.6 4.8 4.2 Advanced Economies 0.2 -3.2 2.7 2.2 United States 0.0 -2.6 2.6 2.3 Euro Area 0.5 -4.1 1.7 1.5 Japan -1.2 -5.2 2.8 1.5 Other Emerging Markets and Developing Countries 6.0 2.5 7.1 6.4 World Trade Volume (goods and services) 2.9 -11.0 11.4 7.0 Import Advanced Economies 0.4 -12.7 10.1 5.2 Other Emerging Markets and Developing Countries 9.0 -8.2 14.3 9.9 Export Advanced Economies 1.9 -12.4 11.0 6.0 Other Emerging Markets and Developing Countries 4.6 -7.8 11.9 9.1 Commodity Prices Oil 36.4 -36.3 23.3 3.3 Non-oil 7.5 -18.7 16.8 -2.0 Consumer Price Advanced Economies 3.4 0.1 1.4 1.3 Other Emerging Markets and Developing Countries 9.2 5.2 6.2 5.2 Source: IMF, World Economic Outlook, October 2010.

National Bank of Ethiopia 2009/10 annual report 103 Euro area real GDP contracted by 4.0 percent in 2009, following the rapid slowdown in growth from 2.7 percent in 2007 to 0.5 percent in 2008. This considerable contraction by far the largest on record was mainly brought about by the very steep fall in output that occurred in the last quarter of 2008 and the first quarter of 2009, in the midst of renewed financial turmoil, heightened uncertainty and an unprecedented decline in world activity and demand. Confronted with the sudden deterioration in business prospects, rapidly depleting order books and costlier and reduced access to financing, firms reacted by postponing expansion plans and cutting inventories. Households, faced with greater uncertainty, increased their savings in the context of deterioration in short-term job prospects and portfolio losses. As a consequence, GDP fell by a cumulated
4.4 percent in the fourth quarter of 2008
and the first quarter of 2009. Thereafter, output broadly stabilized in the course of the second quarter of 2009 and returned to positive growth in the second half of the year albeit at a moderate pace and from a very low base as financial conditions gradually improved and external trade picked up again. In Japan, economic activity deteriorated significantly in the first quarter of 2009, before entering a recovery phase in the second quarter. The downturn was primarily related to an unprecedented decline in exports and production. The improvement in the economic situation was mainly driven by an upturn in exports, reflecting, in part, the strong recovery in other Asian economies and the turnaround in the inventory cycle. Moreover, the recovery was supported by the internal and external fiscal stimulus packages. Business sentiment improved moderately from the second quarter of 2009 onwards, but corporate profits remained at a low level and employees’ income decreased substantially. In addition, the unemployment rate rose to an all-time high of 5.7 percent in July 2009, before decreasing slightly. In 2009, emerging Asia showed notable resilience to the global downturn. In the first quarter of 2009 the collapse of foreign trade led to negative real GDP growth rates in the export-oriented economies of Hong Kong S.A.R., Korea, Malaysia, Singapore, Taiwan P.o.C. and Thailand. China, India and Indonesia, on the other hand, posted lower but still

National Bank of Ethiopia 2009/10 annual report 104 positive economic growth in the same period. Boosted by large fiscal stimulus packages and expansionary monetary policy, emerging Asia began to recover in the second quarter and recorded annual real GDP growth of 5.7 percent . In China, real GDP growth declined only slightly, from 9.6 percent in 2008 to 8.7 percent in 2009. The resilience of GDP growth to the global economic downturn can be explained by several factors. First, the Chinese authorities reacted promptly to the crisis. The RMB 4 trillion stimulus package and increased consumer subsidies, combined with an expansive monetary policy and strong credit growth, contributed to the 90 percent increase in investment in infrastructure in 2009 and to the resilience of private consumption. Second, given that the value-added content of Chinese exports is relatively low (as the import content of Chinese exports is relatively high), the direct impact of the global export slowdown on GDP growth was less severe. Economic activity in Latin America contracted sharply during the first half of 2009, following a very similar pattern to that of the world economy. In year-onyear terms, real GDP for the region as a whole contracted by 2.8 percent in the first quarter of 2009 and by 3.9 percent in the second although it expanded by 0.4 percent quarter-on-quarter in the second quarter. For the region as a whole, the fall in economic activity in the first half of 2009 was the worst since 1980, even though several individual countries have experienced more severe recessions during the past three decades. As sub-Saharan Africa rebounds from the slowdown in 2009, strong macroeconomic fundamentals through much of the region leave it well positioned to benefit from the global recovery now under way. The slowdown to 2.6 percent in 2009 was brief, limited also by the rapid implementation of countercyclical policies made possible by the policy room that many economies had built prior to the downturn. Output growth in the region is projected to accelerate to 5 percent in 2010 and 5.5 percent in 2011, supported not only by the recovery in exports and commodity prices, but also by robust domestic demand in a number of economies. Foreign inflows to the region, including official flows, FDI, and remittances, were less affected by the global downturn than

National Bank of Ethiopia 2009/10 annual report 105 had been feared, although the outlook remains uncertain. The pickup in global demand and the strengthening of oil prices are supporting growth in Africa’s oil-exporting economies. Sub-Saharan Africa’s middleincome economies—whose output contracted in 2009 due to their stronger global trade linkages—are now firmly on the path to recovery. The region’s largest economy, South Africa, has benefited from continued strong demand for commodities from emerging Asia and from a recovery in demand for manufactures from its largest export market, the euro area. The relatively low degree of exposure of the region’s lowincome economies to international trade and financial flows shielded them from the worst of the global downturn. Correspondingly, the acceleration of growth this year is expected to be modest. Output growth in these economies is expected to rise from 4.5 percent in 2009 to 4.9 percent in 2010 and further to 6 percent in 2011.
8.1.2 World Trade
In 2009, the volume of world trade in goods and services went down by 11 percent against 3 percent growth in the preceding year. However, the growth in world trade in goods and services is anticipated to boost by 11.4 percent in 2010 and then slowed down to 7 percent in 2011. While import of advance economies declined by 12.7 percent, that of other emerging markets and developing countries declined by 8.2 percent in 2009. Growth in import of goods and services in these countries are expected to revive by 10.1 and 14.3 percent respectively in 2010. Likewise, exports of goods and services dropped by 12.4 and 7.8 percent in advanced economies and other emerging markets and developing countries in 2009 against the 1.9 and 4.6 percent growth recorded in 2008 respectively. However, exports from these countries are forecasted to recover by 11 and 12 percent respectively in the following year. The USA‘s current account deficit narrowed sharply from 4.9 percent of GDP in 2008 to 2.9 percent on average in the first three quarters of 2009, mainly as a result of the contraction of domestic demand and the drop in oil prices.

National Bank of Ethiopia 2009/10 annual report 106 In 2009, the current account of the euro area recorded a deficit of €59.0 billion (or
0.7 percent of euro area GDP), compared
with a deficit of €140.6 billion in 2008. This fall in the deficit largely resulted from a decrease in the deficit in the income balance (of €40.9 billion) and improvements in the goods balance. Following the sharp contraction in euro area goods trade towards the end of 2008 and in early 2009, goods exports stabilized and rebounded faster than goods imports, shifting the goods balance back into a surplus of €34.7 billion in 2009, compared with a deficit of €9.5 billion in 2008. A lower deficit in current transfers also contributed to the overall narrowing of the current account deficit in 2009. These changes were only partly offset by a decrease (of €10.4 billion) in the surplus in services.
8.1.3 Inflation and Commodity
Prices
After peaking at 4.8 percent in OECD countries in July 2008, boosted by rising food and energy prices, headline inflation started to fall at a quick pace, standing at around 0.5 percent in spring 2009. This rapid retreat in inflation reflected the strong downward correction in commodity prices as well as rising spare capacity, as a result of the global drop in economic activity. In the middle of the year, OECD inflation actually turned slightly negative owing to significant base effects related to commodity prices. However, the negative inflation rates were, by and large, perceived to be a transitory phenomenon, as evidenced by measures of long-term inflation expectations, which remained in positive territory. In October 2009, on account of the fading of these base effects and of a rebound in commodity prices, headline inflation returned to positive territory and rose to 1.9 percent in the year to December 2009, down from 3.6 percent the year before. Excluding food and energy, inflation stood at 1.6 percent in the year to December 2009. In the USA, the average annual change in the CPI for 2009 was -0.4 percent, down from 3.8 percent the year before. Headline inflation moved into negative territory in early 2009, reflecting strong base effects stemming from lower commodity prices. The annual rate of change in the CPI moved back into positive territory in late 2009 owing to an increase in commodity prices and a

National Bank of Ethiopia 2009/10 annual report 107 reversal of base effects. Economic slack limited any upward pressures on prices. Inflation excluding food and energy also decreased moderately during 2009, but remained positive at an average annual rate of 1.7 percent in 2009 compared with
2.3 percent in 2008.
Annual consumer price inflation in Japan turned negative in February 2009 and the pace of decline peaked at 2.5 percent in October. Price developments mainly reflected base effects related to petroleum products and the substantial slack persisting in the economy. In 2009, consumer price inflation dropped considerably in most Asian emerging markets. Only India experienced rising food prices towards the end of the year, which caused a noticeable upward movement in the wholesale price index, the Reserve Bank of India’s preferred measure of prices. In China, annual consumer price inflation was negative between February and October 2009 owing to base effects, with underlying price pressures remaining moderate. After falling abruptly in the second half of 2008, oil prices stabilized in the first quarter of 2009, and subsequently started to increase. At the end of 2009 the price of Brent crude oil stood at USD 77.8 per barrel. Measured in euro terms, this corresponds to roughly the level recorded at the beginning of 2006. For the year as a whole, the average price of Brent crude oil was USD 62.5 per barrel, i.e. 36.4 percent below the average of the previous year. The prices of non-energy commodities followed a similar pattern. Metal prices, copper in particular, posted significant gains, which were also sustained by purchases related to the massive stimulus package, geared towards infrastructure, announced by the Chinese government. Food prices also increased, although to a lesser extent, led in particular by sugar. In aggregate terms, non-energy commodity prices (denominated in US dollars) decreased by an average of approximately 22 percent in 2009 compared with the previous year.
8.1.4 Exchange Rate
Exchange rate developments in 2009 were to a large extent shaped by the evolution of global financial conditions

National Bank of Ethiopia 2009/10 annual report 108 and the prospects for economic recovery around the world. Tensions in global financial markets and very high uncertainty regarding the economic outlook prevailing in early 2009 resulted in an unwinding of carry trades (i.e. trades that consist of borrowing in a low-yielding currency and investing in a high-yielding currency) and global portfolio shifts, contributing to some large swings in the main bilateral exchange rates. These factors, together with decreasing monetary policy rates and a more unfavorable outlook for growth in the Euro area and the EU as a whole, contributed to a weakening of the Euro, which – as measured against the currencies of 21 of the Euro area’s important trading partners – depreciated by over 3 percent in effective terms in the first two months of 2009. After some volatility in March and April, the Euro started to rise in May 2009 amid improving financial market conditions, as reflected by gradually subsiding financial market spreads and decreasing implied volatilities. After strengthening by almost 5 percent in effective terms by the end of October 2009, the Euro stood close to the historical peaks recorded at the end of
2008. This appreciation resulted primarily
from the strengthening of the Euro against the US dollar and major Asian currencies linked to the US currency. Subsequently, the Euro stabilized before depreciating somewhat in effective terms in December. Overall, the Euro weakened in 2009. This reflected depreciation against the Pound Sterling, which was partly offset by a strengthening vis-à-vis the US dollar, major Asian currencies linked to the US dollar and the Japanese Yen. On 31 December, 2009 the Euro stood in nominal effective terms – as measured against the currencies of 21 important trading partners – 1 percent lower than at the beginning of the year and about 1.2 percent above its average level in 2008. Against the US dollar, the Euro initially depreciated by around 9 percent in the first two months of 2009 amid portfolio flows into some segments of the US market against the background of a decreasing transatlantic interest rate differential. After March 2009, as the tensions in the financial markets started to ease gradually, the Euro rebounded against the US currency. At the same time, the re-emergence of carry trades,

National Bank of Ethiopia 2009/10 annual report 109 which may have been supported by the moderation of implied volatilities, also appears to have contributed to the weakening of the US dollar. Between early March and the end of October the Euro appreciated by almost 19 percent. On 31 December 2009, the Euro traded at USD/EUR 1.44, around 3.5 percent higher than at the beginning of 2009 and about 2 percent weaker than its 2008 average. Following a similar pattern to the EUR/USD exchange rate, in the first two months of 2009, the Euro depreciated against the Japanese Yen. In March and April, when economic activity in Japan was reported to have deteriorated more than initially expected and financial market tensions started to ease, the Euro rebounded. Throughout the remainder of 2009, the Euro fluctuated within a range from JPY 128 to JPY 138. On 31 December 2009, the Euro traded at JPY 133.16, around 5.6 percent higher than at the beginning of the year but around 12.5 percent lower than its average for 2008. After reaching an all-time high vis-à-vis the Pound Sterling in December 2008, the Euro depreciated in 2009 by around 7 percent, amid considerable volatility. The Euro also experienced sizeable fluctuations against the currencies of several other EU trading partners. The euro remained broadly unchanged against the Swiss Franc in 2009, experiencing increased volatility in the first three months of 2009 and subsequently stabilizing amid reports of foreign exchange interventions by the Swiss National Bank.
8.1.5 Capital Flows
Given emerging Asia’s marked macroeconomic improvement from the second quarter of 2009 onwards and the gradual increase in investors’ risk appetite, foreign capital, especially portfolio investment, began flowing back into these countries in March 2009, thus leading to a steady rebound in local bond and equity markets. In many countries, increased capital inflows coincided with substantial current account surpluses, which led to strong upward pressures on exchange rates. The Euro area experienced net inflows of €251.2 billion in combined direct and portfolio investment in 2009, compared with net inflows of €161.5 billion a year earlier. This increase reflected a shift

National Bank of Ethiopia 2009/10 annual report 110 from net outflows to net inflows in equity portfolio investment (a change of €80.5 billion) and a decrease in net outflows in foreign direct investment (of €98.1 billion). These developments were partly offset by lower net inflows in debt instruments (of €88.8 billion).
8.2. Implication for Ethiopia
The external sector of Ethiopia has responded positively to the global economic recovery largely since the second half of 2009/10. For instance, total earnings from export of merchandise goods, which fell by 1.2 percent in 2008/09 as a result of global demand contraction, rose markedly by 38.3 percent in 2009/10 driven by the increase in volume of exports and revival of international prices in response to the recovery of global economic activities. Likewise, net receipts from service exports went up notably by 18.7 percent while individual remittances and FDI inflows showed moderate growth of 9.3 and 7 percent, respectively during the review year. On the other hand, the rising international oil price as a result of strong demand since the start of global economic recovery is likely to negatively affect the country’s current account balance as it consumed about 65.4 percent pf the total revenue from merchandise exports in 2009/10. the upward pressure on world oil price is anticipated to persist in 2010/11 due to continued robust demand and hence oil import will raise the foreign exchange payments of the country. Yet, the overall global financial conditions are expected generally to remain stable or improve through the fiscal year. Hence, Ethiopia’s external sector performance particularly with respect to export revenue, FDI inflows and private remittances is likely to improve.

National Bank of Ethiopia 2009/10 annual report 111

Similar documents from other regulators