Outlook for 2011-12

• The ruling Ethiopian People's Revolutionary Democratic Front (EPRDF) is expected to remain firmly in power following an emphatic victory in federal and regional elections in May 2010.
• The opposition was, in effect, removed from parliamentary politics by its landslide election defeat in 2010. Its divided nature and inability to raise significant funds will make it easy for the government to keep it marginalised.
• Ethiopia will continue to support the government of Somalia, and it will retain its position as the key US ally in the volatile Horn of Africa.
• The new five-year Growth and Transformation Plan (GTP), which prioritises agriculture, infrastructure and industry, will shape macroeconomic policy.
• Real GDP growth is forecast to rise to 9% in 2010/11 (year ending July 7th), owing to a favourable agricultural performance, and 9.5% in 2010/11, helped by higher foreign investment and further improvements in the power supply.
• Inflation is forecast to rise to 11% in 2011, owing to higher domestic demand, structural inefficiencies and a significant depreciation of the currency in late 2010. It is expected to stay high in 2012, at 10%, owing to structural constraints.
• The current-account deficit is forecast to average 9.9% of GDP in 2011-12, owing to a structural trade deficit.

Monthly review

• Two of Ethiopia's largest opposition parties, the All Ethiopian Unity Party and the Unity for Democracy and Justice party, have announced plans to merge.
• In mid-December the central bank announced an increase in the minimum savings rate for banks from 4% to 5%. With inflation at 10.2% in November, the negative real interest rate is 5.2%, creating little incentive for people to save.
• Ethiopia's first commercial wind turbine was erected in December by French firm, Vergnet, on its Ashegoda wind farm. Electricity production is expected to reach 30 mw by mid-2011, with the remaining 90 mw to be installed by 2013.
• The government has signed a US$200m loan agreement with the African Development Bank to improve energy infrastructure, including high voltage transmission lines, rural electrification and regional interconnections.
• In December the Ethiopian Revenues and Customs Authority announced that in the first quarter it had collected only around 20% of total budgeted revenue for fiscal year 2010/11. It blamed a concentration on administrative tasks.
• A new windfall tax was introduced by parliament in November on bank profits resulting from the 16.7% devaluation of the birr in September. Banks are required to pay a 75% windfall tax on all such profits.