Following the Cessation of Hostilities Agreement between the governments of Ethiopia and Eritrea, the Ethiopian government approached the World Bank for assistance in financing a comprehensive post-war recovery program, including the demobilization and reintegration of veterans, rehabilitation and reconstruction of infrastructure, assistance to facilitate the return of displaced civilians and deportees, as well as stabilizing the economy.
- help the government of Ethiopia demobilize (transition from military to civilian status) and reintegrate (economically and socially) 150,000 veterans;
- facilitate the reallocation of public resources to priority social and infrastructure investments by reducing defense expenditures;
- and support the country's macro-economic stability.
To date, 158,000 soldiers of the Ethiopia National Defense Force (ENDF) have been demobilized. Nearly all demobilized veterans have received grants and successfully reintegrated in the society and economy of Ethiopia.
- The fiscal impact of demobilization has been substantial, facilitating a significant shift of government expenditures from the defense sector to other social and economic development priorities. Specifically, defense expenditure decreased from 12.8 percent of GDP in 2000 to 3.6 percent of GDP in 2004. Over the same period, social expenditures increased from 15 percent to 27 percent of the government of Ethiopia's recurrent expenditure.
- This reduction in defense expenditure has also contributed to rapid macroeconomic stabilization following the cessation of hostilities with Eritrea in June 2000.
- The vast majority of demobilized veterans (99 percent) received reinsertion and reintegration grants to help them resume productive civilian livelihoods. The majority of veterans have successfully returned to economically productive civilian livelihoods.
- Five regional prosthetic centers have been rehabilitated; and a National Rehabilitation Center (NRC) is currently in the final construction phase. Several thousand disabled veterans have received specialized medical rehabilitation support and specialized economic reintegration assistance.
- IDA made large and flexible resources available to the government of Ethiopia for demobilization and reintegration very rapidly following the signature of the cease-fire in June 2000: the government was able to initiate a rapid downsizing of the National Defense Force by December 2000.
- IDA provided technical assistance for institution building, the development of economic reintegration support strategies and the development of strategies to support the medical and economic reintegration of disabled veterans.
- IDA provided intensive supervision through a multi sector team.
- The total project cost is estimated at US$174 million, of which IDA is financing US$170.6 million and the government of Ethiopia is financing US$3.4 million.
- Complete the construction of the National Rehabilitation Center and rehabilitation of Prosthetic Orthotic Centers.
- Establish strategies to ensure sustainability of medical rehabilitation investments and facilitate appropriate medical treatment for the severely disabled veterans.