Finance focus shifts to private sector

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(Photo: Anteneh Aklilu)

Under part of the ‘Home Grown Economic Reform (HGER)’ program the government has changed the availability of finance for the private sector significantly from its previous focus on the public sector.
Under the three year HGER program first four months of the first year Ministry of Finance has announced that the loan that provided for the private sector has climbed to over 82 percent, which extraordinarily increased compared with the previous trend.
Eyob Tekalegn, State Minister of Finance (MoF) told the media that in the stated period of the HGER the private sector secures the maximum amount of the finance.
The HGER program that is being implemented in three pillars; macroeconomics, structural and sectoral reform has targets to show tangible change in the economic sector as gives more priority to the private sector.
In the past the government has given priority to the public sector at the expense of the private sector under different policy implementations.
The biggest bank, Commercial Bank of Ethiopia, the state owned bank, in its past year performance provided 129 billion birr in loans but private sector only secured 17.2 percent or 22.2 billion birr from the total loan disbursement.
According to Eyob, one of the key areas in the program is access to finance and the government has undertaken massive changes.
He indicated that due to the exemption on the 27 percent NBE bill banks have started reducing interest rate for borrowing.
“As part of our plan to rebalance the source of growth from public to private; access to finance has been a key area focus in the reform and for instance in the past four months of the budget year out of the total credit the private sector secured 82 .7 and the balance went for the public sector,” Eyob said.
“Compared with the same period of last year the amount of credit that went to the private sector increased by 44.3 percent which is a phenomenal increase,” he added.
In the macro financial areas of the reform the National Bank of Ethiopia (NBE) has achieved several changes and improvements according to Eyob who leads the reform that is undertaken by the committee chaired by the Prime Minister.
Macro financial stability, debt burden, inflation and forex shortages are the priorities that are changing under the changes in macro financial areas.
NBE is building its analytical capability to implement modern monetary policy and MoF is also working very hard to insure there is a prudent fiscal policy, according to the state minister and shows that NBE has lifted the 27 percent NBE bill that was imposed on private banks to buy the stated percentage amount of bond for their every loan approval and introduce weekly based treasury bill with market base.
“This is to start up modern monetary market that would be a strong road back to move into a holistic stock market and capital market. So the NBE is working on the related framework and human resources requirement to launch full-fledged stock market by 2020,” Eyob said.
Under the reform the government is also looking to tackle inflation. Over the last 10 years inflation has risen by an average of 15 percent. The problems will be associated with monetary policy expansion and international commodity prices, according to the State Minister.
“In that regard the macro reform shall have a significant impact on the change for the long term but in terms of short term inflationary challenges the key sources are productivity output and domestic trading regime and the government is working over the whole to make sure inflation subsides,” he added.
For the implementation of the program the government has stated that it required about USD 10 billion.
The State Minister said that several multilateral and bilateral partners responded positively to provide the resource. At least half of the resources would come from multilateral partners, the World Bank and International Monetary Fund (IMF) and bilateral and donors have decided to support the program.
He said that IMF’s support will amount to 700% compared with the nation’s quota. Following his announcement on Wednesday afternoon IMF issued a statement that in its latest meeting with government officials under the annual Article IV Consultation for Ethiopia the authorities’ request for a three-year USD 2.9 billion financing package that could be supported by the IMF under its Extended Credit Facility (ECF) and Extended Fund Facility (EFF).
“Discussions with the authorities continued after the mission,” a statement of the IMF staff team led by Sonali Jain-Chandra, who visited Addis Ababa from October 29 to November 8, added.
“The Ethiopian government and the IMF staff team reached a preliminary agreement, subject to approval by the Fund’s Executive Board, on policies that could constitute the basis for Ethiopia’s new program supported by the ECF and EFF arrangements. The overall objective of the program would be to support implementation of the authorities’ Homegrown Economic Reform Program,” the team explained on the statement.
The statement added that the fund-supported program would consist of five main pillars: (1) durably address the foreign exchange shortage and transition to a more flexible exchange rate regime; (2) strengthen oversight and management of state-owned enterprises to contain debt vulnerabilities; (3) strengthen domestic revenue mobilization and expenditure efficiency to create space for adequate poverty-reducing and essential infrastructure spending; (4) reform the financial sector to support private investment and modernize the monetary policy framework; and (5) strengthen the supervisory framework and financial safety nets.
Eyob said that in the coming couple of months massive foreign currency flow in the country through investment would be a solution for the foreign currency shortage.