Ethiopia is making steady progress in economic growth. In 2000/01, real GDP growth reached 7.9 per cent, from a yearly average of 4.8 per cent since 1994/95. Notwithstanding the growth upsurge, per capita income in Ethiopia has continued to decline since 1997/98. The growth performance is expected to moderate with an estimated growth rate of GDP of 5 per cent in 2001/02, which will rise to 6 per cent in 2002/03. In effect, Ethiopia’s declining per capita income is expected to continue in the short term. In line with its Poverty Reduction Strategy Paper (PRSP) commitments, the government has put poverty reduction at the centre of its medium-term growth strategy. Ethiopia’s economic management is improving, underlined by fiscal and monetary prudence. The government’s recent fiscal performance is marked by success in orientating spending from defence to poverty-targeted outlays. However, weak expenditure management is hampering progress towards fiscal stability. Further increases in government expenditure are expected to outweigh revenue gains leading to continuing deterioration in the budget position in the short term...