FIRST POVERTY REDUCTION SUPPORT OPERATION

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The project will support the implementation of the SDPRP by: strengthening the focus on planning and budgeting processes; stabilizing the public sector during a period of rapid state transformation in order to maintain pro-poor expenditures; and improving the investment climate (including for the rural sector). The Sustainable Development and Poverty Reduction Strategy Paper (SDPRP's) goals, objectives and strategies were set in the context of a decade of progress in economic performance and poverty reduction. Following the collapse of the Derg regime, structural reforms began in the early 1990s. Foreign exchange markets were liberalized and the birr was devalued, bringing a 50% depreciation in the real exchange rate. Initial emphasis was placed on the agriculture sector, where reforms reversed the heavy burden of implicit taxes on the rural economy. Restrictions on grain traders were relaxed and then lifted, food delivery quotas on farmers were lifted, whilst restrictions on agricultural input markets were lowered and seed and fertilizer availability increased dramatically. Farmgate prices for tradeables improved, productivity increased, and production expanded. Progress was also made in improving the efficiency of tax policy and in lowering customs tariffs. Privatization reforms began, and a homegrown civil service reform program - comprising expenditure and human resource managements reforms as well as initiatives in performance improvement and ethics - was launched to increase the efficiency and effectiveness of Ethiopia's nascent federal system. Growth in the reform period since 1992/3 averaged 5.8% per annum, implying historically high per capita GDP growth of about 2.8% per year. Growth in the early days of the reform period came from an increase in private consumption, was spread quite evenly across the agricultural, industrial and service sectors and was spurred on by substantial improvements in food production.