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Agriculture sits at the top of fresh loan Unique balance of payments surplus in 4Q registered

Unlike the previous experience, the agriculture sector has got better attention in terms of finance allocation, while the overall balance of payments has shown unique surpluses in the fourth quarter of the 2019/20 budget year.
It is recalled that the reforming government has given significant attention for the agricultural production and productivity in every facet including access to finance.
The agriculture sector is the source of major job and revenue for the country and a pillar for foreign currency earning. The sector experts at the time claimed that the government is only using it for politics and had not given it the required attention in different forms.
Under the new reform led by PM Abiy Ahmed, several changes have occurred in the sector including formation of a think tank like committee that comprises of different actors mainly independent pundits to see tangible changes on the agriculture sector and reducing the foreign currency allocation to cut import of agricultural products and expand the export earnings.
One of the major points set by the government is to boost access to finance for the agriculture actors and small scale farmers, who are excluded in all forms despite being the major source of hard currency and backbone for other economic pillars.
The effort of the government now seems to bear fruit regarding access to loans for the agriculture sector. On its fourth quarter economic overview for the past budget year that ended on June 30 the National Bank of Ethiopia (NBE) indicated that from the total fresh loan disbursement of the last quarter of the 2019/20 budget year the agriculture sector stood at the top. From past experience the sector was one of the last in category to access finance.
In the reported period, that is, from April to June 2020 of the total fresh loans, agriculture sector was the largest beneficiary, accounting for 16.8 percent that which made it top in comparison to other actors from the traditional sectors that are mainly international trade and domestic trade.
In the stated period the agriculture sector had secured 10.7 billion birr from total disbursed loan.
The agriculture sector is followed by mines, power and water resources (15.3 percent), international trade (15.2 percent), housing and construction (14.4 percent), and domestic trade (12.5 percent).
The banking sector disbursed 63.7 billion birr in new loans during the review quarter indicating a 15.1 percent annual decline due to slowdown in public banks disbursement. Of the total new loans, state owned banks took a 50.9 percent share while that of private banks was 49.1percent.
Similarly regarding import, most of the other sectors have reduced since the period entailed the beginning of the first reported case COVID 19, which was March 13 in the country. However, the agriculture sector import has shown massive improvements.
The NBE review stated that capital goods import decreased by 15.1 percent due to a 69.6 percent fall in import bills of transport and 3 percent in industrial capital goods while Agricultural capital goods increased by 50.7 percent.
The total loan portion for agriculture sector is expected to surge since the central bank has issued a directive that was effective as of the beginning of the budget year. The directive imposes financial institutions to allocate at least five percent of the total fresh loan to the agriculture sector.
In the stated period the total outstanding credit has surpassed a trillion birr for the first time. The NBE quarterly review indicated that the total outstanding credit of the banking system (including corporate bond) increased to 1.03 trillion birr about 20.4 percent higher than last year same quarter.
Out of the total outstanding credit of private banks, 99.6 percent was claims on the private sector compared with 20.3 percent for state owned banks.
Sector wise, mines, power and water resources sector are the major recipient of credit outstanding with 304 billion birr (29.5 percent) followed by industry (221.7 billion birr or 21.5 percent) international trade (134.1 billion birr or 13 percent), housing and construction (115.5 billion birr or 11.2 percent), domestic trade (87.8 billion birr or 8.5 percent), and transportation and communication (68.7 billion birr or 6.7 percent).
Total merchandise import bill decreased by 21.6 percent to USD 2.7 billion, on account of lower import values of capital goods (15.1 percent), consumer goods (24.7 percent), fuel (51.1 percent) and miscellaneous goods(46.1 percent).
Total petroleum import bill at 10 billion birr showed a 43 percent decline over last year same quarter owing to lower international oil price and volume of imports as a result of COVID-19 pandemic.
Thus, in this coronavirus global pandemic period all types of petroleum products saw decrement in their annual and quarterly import bill. The NBE report indicated that compared with previous quarter, petroleum imports dropped by 40.4 percent, as a result of 62 percent decline in jet fuel followed by gas oil (37.7 percent), regular gasoline (32.7 percent) and fuel oil (25.6 percent).
Uniquely the overall balance of payment has also show positive result in the stated period due to different reason including lower import and better performance on export and officials transfer.
“The overall balance of payments registered USD 653 million in surplus during the fourth quarter of 2019/20 compared to USD 558.5 million deficits a year ago,” the NBE report stated.
“This surplus was mainly attributed to narrowing of trade deficit, an increase in net official transfers and a surplus in net capital account,” it explained.
The report shows that the trade deficit has narrowed to over USD 1.7 billion that was close to USD 2.9 billion and over USD 2.7 billion in the third quarter of 2019/20 and fourth quarter of 2018/19 budget year respectively.
In the stated period the export was USD 943 million with 23 percent increment from the same period of the preceding year. To higher export revenue by climbing of gold and flower that increased by 3239.5 percent or thirty two fold and 17.1 percent respectively has played major role besides the revenue surge of coffee and some other commodities.
While the import was USD 2.7 billion that has dropped by about 22 percent compared with the fourth quarter of 2018/19. The major decrement on import items is due to lower import values of capital goods, consumer goods, and petroleum.
In the stated period petroleum import consumed USD 309 million that was USD 631 million in the last quarter of the 2018/19 budget year. It indicated that the fuel import value has shrunk by 51 percent in the reported period compared with the same period of the previous year. The capital goods import has also reduced by more than 15 percent.
The official transfer on the fourth quarter of the past budget year was USD 422 million that increased by 2.3 percent and 54.6 percent compared with the same period of the preceding year and third quarter of the ended budget year respectively.
The capital account has also surged to USD 1.23 billion with growth of 39 percent and 58 percent compared with the same period of the preceding year and third quarter of the ended budget year respectively.
The deficit in the current account balance (including official transfers) has also narrowed to USD 211 million compared to USD 1.1 billion a year ago due to lower deficit in merchandise and services trade and an increase in surplus of official transfers.
At the end of fourth quarter of 2019/20, broad money supply has surpassed a trillion birr and reached 1.037 trillion, depicting 17.0 percent growth over last year same quarter.
NBE explained that this was mainly driven by 22.1 percent expansion in domestic credit against 132.3 percent contraction in net foreign assets (NFA).
The increase in domestic credit resulted mainly from 24.8 percent hike in credit to central government and 16.0 percent growth in credit to non-central government.
From the broad money supply the narrow money share stood at 360.6 billion birr with 109 billion birr of currency outside bank and the balance on demand deposit. The currency outside bank in the fourth quarter of 2018/19 budget year was 92 billion birr that climbed by 18.5 percent in the same quarter of 2019/20.
The quasi money supply is 677 billion birr and from it the time deposits that stood at close to 88 billion birr has dropped by 2.9 percent compared with the same period of last year that was 90.5 billion birr.
Likewise, reserve money amounted to 246.5 billion birr showing 22.8 percent annual growth owing to a 15.4 percent increase in currency in circulation and 34.3 percent rise in banks’ deposits at NBE.

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