COVID-19: socioeconomic impacts and recovery in Ethiopia

This technical report assesses the implications of the COVID-19 pandemic for the economic performance and poverty incidence in Ethiopia for 2019/20 and 2020/21. It takes into account the impacts of the pandemic on four channels: a) factor productivity, b) trade costs, c) export demand and tourism, and d) remittances and FDI. Through the inclusion of the Ethiopian government responses of stimulus spending, job protection and business support, the report evaluates the effectiveness of these measures for the economic recovery to pre-COVID-19 pathways. By using a macroeconomic multi-sectoral model, the study includes results at national (GDP, supply, demand, trade), sectoral (output and prices) and household (welfare) levels. The household food expenditure results are then included as income measures in a poverty analysis module to further characterise the effects of the pandemic on poverty headcount, gap and severity. In annualised terms, the modelling results show that the COVID-19 impacts could have been significant across all macroeconomic metrics had the government not intervened. The GDP would have decreased from pre-COVID-19 projections by -11.1% in 2019/20 and -6.7% in 2020/21, with severe implications for employment and household welfare. The government response consisting in increased spending (healthcare and food programmes) and salary payments to prevent job losses may have had an important role in improving the macroeconomic outcomes of the pandemic in 2019/20. Nevertheless, much of the aggregate recovery (GDP, employment and welfare) is driven by agriculture as output in most manufacturing, construction and services sectors continue to be affected by productivity shocks and low demand. Therefore, employment and output outside agriculture could still be below the pre-COVID-19 projections even when additional business support measures are included. Without government intervention, the poverty headcount would have increased by about 5% in total population. The government measures are projected to mitigate that effect to a large extent and to allow national poverty levels to reach pre-COVID-19 values in 2020/21 or to even fall below in case of an enhanced business stimulus package from the government. Nevertheless, poor urban households continue to be negatively affected and would require more targeted support.