Ethiopia’s economic chronicles

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(Photo: Anteneh Aklilu)

The government disclosed that the country is registering massive changes in the economic sphere in the just concluded fiscal year.
The debt GDP ratio has significantly reduced in the ended fiscal year that is supported by zero non concessional loans received.
Eyob Tekalegn, State Minister of Finance, stated that more or less on the economic front the country has achieved the goals it set for the year.
He said that changes are continuing as per the past to gain the expected success as per the program that was put by the government for three years.
He said that the new government will introduce a new structure that will correct the bureaucracy and responsibility of public offices including restructuring the market on the way to cut the inflationary behavior.
He informed that the quarter century old agriculture policy is in the changing works.
On his latest meeting with media on the weekly briefing through the Office of the Prime Minister, Eyob said that the fresh loan for July had just shot up by 125 percent that made the government cautious to impose temporary restrictions on access to fresh loan under property collateral.
On his briefing, the State Minister has also stressed that despite inflation being the major macro economic challenge at the current stage, the country has registered massive achievements in this law enforcement occasion that was ignited by the terrorist, TPLF, on November 3.
The domestic revenue had registered growth for the year despite there being challenges for the year and similarly commercial banking and Development Bank of Ethiopia revenue increased by 22 percent, while insurance companies revenue climbed 16 percent, and loan and deposit increased by 33 and 30 percent, “what these high frequency data tells you is the rebound and better performance of last year, which ended on July 7, 2021.”
According to the State Minister, the lion’s share of fresh loan went to the private sector which received 70 percent consistent with the government direction of rebalancing the role of private sector on the Ethiopian economy.
He reminded that the export shows unique growth against the stagnant experience for the past decade.
“The export growth shows the very conscious and deliberate policy decision that was taken by government on the agriculture and mining fronts,” he remarked the effort of the leadership at the centre, whilst adding that, “this is not sheer luck, it came out of hard work. We have been able to remove the structural bottlenecks in the sectors.”
Agriculture productivity for the year has increased by 5.56 percent in just ten months of the past budget year, which was usually about 4.5 percent annually.
“For this success, the dry season harvest played a crucial role which registered the growth of 220.6 percent. What is phenomenal when you look at the dry season, of course you must think about irrigation which for instance recorded increase. When the year ends and we get the full data, I am sure it would be quite surprising from the money aspect,” he explained.
The dry season harvest particularly for the wheat sector was introduced about two years ago and expanded in the past budget year.
One of the successes the country retained was easing the debt distresses that are now on high risk.
He stressed that the government is continuing taking measures that would reduce the risk of debt distress, including re-profiling and restructuring of debts.
According to Eyob, the debt was rigorously maintained on a zero limit on non concessional loans which has shortly helped significantly reduce the debt to GDP ratio. As of June 2021, the figure shows that the debt GDP ratio has come down to 50 percent which is an eight percentage point decline from the June 2019 percentage points, “but very interestingly if we look at debt service to export and debt service to revenue ratio it is also improved by two to three percentage points annually in the last couple of years.”
“Again as of June 2021, debt service to export stood at 24 percent showing a reduction from 26.4 percent in 2019. This tells you that we are really on track as we’ve been saying towards our goal of meeting moderate debt distress by the end of the reform period, because export performance is the most critical variable on our debt re-profiling effort,” he elaborated.
He also stated that the country has undertaken massive changes on ease of doing business to attract FDI.
“But as we do this, we have not lost sight of addressing the structural deficiencies of the economy, and we are working to address structural deficiency in the economy, including productivity improvements across sectors and reduction of high import dependency,” the State Minister explained.
Currently, government is revising the agricultural policy after 25 years that has already been reviewed by the macro team which went to the Council of Ministers, for approval, “and we are sharpening the industrial policy tools to engender strong and broad based domestic manufacturing; in this regard the recently announced custom tariff reform had slashed the tariff rates on raw materials and intermediate goods significantly,” he explained by adding that it will be applicable at customs border rather than the past experience of passing through several government authorities to get special privilege.
The development corporation is measured by inflow, which refers to the amount of money disbursed during a given period, and commitments.
The inflow for the fiscal year actually registered USD 3.9 billion, which was 80 percent of the plan, while the commitment that was signed in the year was higher from the stated amount from the inflow and attained 90.5 percent of the projection. Of course this is also affected by the issues in relation to the law enforcement which is taking place in the northern part of the country.
Inflation, Forex and central bank
It was stated that inflation is the major macro challenge that the country is struggling with.
“We have started to take a multiple approach to tackle inflation on every front; on the monetary policy side of which some of the expansionary measures that we have taken early on the last couple of years were to mitigate the effects of COVID19 and also the cost increase due to probably domestic conflict which might have increased inflationary challenge. So the National Bank Ethiopia (NBE) this week has introduced measures to further tighten the monetary stands,” the State Minister elaborated.
“But this is our first set of measures which we must point out that NBE stands ready to utilize all available tools at its disposal to ensure price and an economic stability,” he explained.
But the critical challenge of the economy is on the supply side, so in that regard, he said that the government is addressing the supply-side challenge by enhancing productivity.
Ministry of Agriculture is now working on its actuality, not only on the ten year plan but on a one year plan, where a focus is drawn to enhance productivity across different sectors of the economy focusing on inflationary communities and in different parts of the countries, there will be more than the usual cultivating on land mantra, “to be focused targeting specific commodities that we think are contributing to food inflation.” In the short term availing some basic commodities like wheat by import will continue.
The other area the government is undertaking is focusing on the market structure.
“We are very optimistic that the new government structure will fundamentally address the market structure issue by clarifying, the mandates of government institutions and strengthening our regulatory capacity.”
The State Minister said that the government is working to come with a solution from the roots as one of a key reform measures.
The government understanding is that shock therapy and quick measures to improve the exchange rate issue has not been useful and positive in the past. The government is taking a measured approach with the rational to ensure the smooth transition through using forex supply constrain in the economy building buffers including export receipts and unwinding the expansionary fiscal and monetary policies.
“We are taking this holistically rather than focusing on shock therapy or quick wins. So reform generally has been very successful and last year, the forex market had shown promising improvement which was more than 30 percent narrowing down of the parallel market premium,” he said.
Regarding the collateralize loans that are off by NBE, it was stated as temporary measures for different and specific reasons including to correct parallel market pressures.
“But generally, when we say, there is a deliberate policy measure by the National Bank, to take a much prudent and stricter measure monetary policy stance that would have some definitely a trade off of here. For instance, if you look at the July disbursement it was about 125 percent that was at the entire year, the overall new credit has increased by 40 percent. It’s a conscious decision,” he elaborated.
He said that the government wanted to encourage private sector and also because of the COVID 19 impact, the general trend globally and also the policy measure taken was because of COVID 19. Because of that the State Minister explained that government had to take it’s our hands off the break, further highlighting that you can’t be too strict in the fiscal and monetary policy when people are dying of pandemic. But now if it has an impact of inflationary pressure, it is required to take conscious policy decisions which are taken to actually limit the economic activity.
The major macro challenge now is inflation, so for this reason, the decision by the National Bank to increase reserve requirements for banks, make a little bit expensive for banks to get access to money from the central treasury is a right decision.
He said that of course, there will be some trade-offs here, but it would be helpful in the long run.
The measures that the government had taken early on by introducing sweeping reforms on the economy is stated by the State Minister as a significant role to which the latest conflict could not make it face visible damage on the economy. The conflict might have had serious cost to the economy but did not, “for instance, when we talk about revenue performance last year it has been achieved.”