Ethiopia's Prime Minister Meles Zenawi said last week that the country has embarked on energy development projects even against the advice of donors.
"We faced two major obstacles in our attempt to build hydro-electric dams. One is a shortage of money, the secondly, many economists said it would be a waste of resources," Meles said.
The prime minster told journalists that international financial institutions like the IMF and World Bank did not want to provide grants or loans to energy projects saying the money could better be spent in building schools and clinics.
"We decided to go ahead with our projects and look for alternate funding options elsewhere. We also put our own money on the table and combined this with non-conventional sources of funding," the prime minister said.
According to government sources Ethiopia's demand for energy has grown by 24 percent this year. This has led to a massive power shortage, one that has not been seen in decades. Now major cities and towns including the capital, Addis Ababa, are in a black-out. Power shedding has put the country's industries at a standstill.
Minister of Energy and Mines Alemayehu Tegenu told VOA the country is generating less than half of the total electricity demand. He said investments in this sector are steps in the right direction.
"It is not an easy investment. We are spending about 40 percent of the country's budget in these investments," Alemahehu said. "They will cost us 50 billion birr in the coming five years."
These projects that require huge financial expenditure are putting a strain in the country's economy. It is hemorrhaging the country's already low foreign currency reserve, according to the prime minister.
Experts say inflated budgetary spending by the Ethiopian government has exceeded the nations GDP. This has sparked widespread inflation that accounts for the soaring price of commodities. Ethiopia's government says the investments are intended to accelerate the country's development and are being carried out at the right time. But some experts say the social and macroeconomic effects of these projects will be felt in the years to come.