UPDATE 2-Ethiopia's economy grew 6.1% in 2019/20 fiscal year - PM

(Adds quotes, details on demonetization)

ADDIS ABABA, Oct 19 (Reuters) - Ethiopia’s economy grew 6.1% in the 2019/20 fiscal year to July, less than originally projected because of the impact of the coronavirus pandemic, Prime Minister Abiy Ahmed said on Monday.

In January, two months before Ethiopia’s first reported case of the new coronavirus, the central bank had forecast the economy would expand by 10.8% this fiscal year, up from 9% in the previous year.

“For eight months we registered a healthy economic growth but after that, then coronavirus came and for the remaining four months we faced challenges,” Abiy told lawmakers.

Under Ethiopia’s demonitisation process launched last month, at least 1.3 million Ethiopian adults who previously did not have bank accounts have handed in their old banknotes and opened accounts, Abiy said.

Abiy took office in 2018 and promised sweeping economic reforms. Some changes are beginning to be implemented.

The government says demonetisation will discourage cash hoarding which facilitates corruption, tax avoidance and other damage to the economy.

“This is a success in terms of bringing many people to banks,” he added. Just over one third of Ethiopian adults had a bank account in 2017, according to the World Bank. This compares to more than 80% of adults in neighbouring Kenya, for example.

On Sept. 14, Abiy announced a three-month window for people to deposit old notes and said that in return, they will be given a bank account to withdraw the new notes from.

The country’s gross domestic product now stood at $107.4 billion, Abiy said.

He also said the government had received requests for 20 new commercial banks seeking approval to set up. At present Ethiopia has 19 banks. Its banking sector is closed to foreign investment and is still one of the most tightly state-controlled in Africa.

Ethiopia has 89,137 confirmed COVID-19 cases, with 1,352 deaths and 42,649 recoveries, according to its health ministry data. (Reporting by Dawit Endeshaw; Writing by George Obulutsa; Editing by Maggie Fick and Raissa Kasolowsky)