Ethiopia has recently embarked on a transformative journey of macro-economic reform, a strategic initiative that promises to significantly enhance the country’s development landscape. This reform aims to liberalize key sectors, including finance and telecommunications, thereby fostering an environment conducive to economic growth and prosperity. As Ethiopia positions itself as a key player in the African economy, the implications of these reforms are substantial, not only for its citizens but also for the broader regional context.
Recognizing some economic challenges, the Ethiopian government has initiated a series of reforms aimed at transitioning towards a more market-oriented economy.
During the recent G7 Africa Ministerial Roundtable, Ethiopia was represented by a high-level delegation led by Ahmed Shide, the Minister for Finance. This meeting served as a platform for discussing pressing financial issues, including debt sustainability, liquidity challenges and developmental initiatives across Africa.
Minister Ahmed Shide articulated the core objectives of Ethiopia’s pro-poor economic reform program, which is designed to modernize the economy and shift the growth paradigm from public sector-led initiatives to a more vibrant private sector. This shift is crucial, as the private sector is often viewed as a more efficient engine for job creation and innovation.
The Minister highlighted core areas of the reform, which is to improve domestic resource mobilization, rationalize public expenditure and enforce fiscal discipline to ensure fiscal sustainability, manage debt to a sustainable level, pursue market-based exchange rate regime to correct distortions in the external balance of the economy, as well as improve institutional and sectoral frameworks to improve productivity, generate decent jobs and accelerate economic growth.
The need for international cooperation and concessional financing is critical, especially as Ethiopia navigates these ambitious reforms. Minister Ahmed emphasized that continued support from international partners is essential to meet the growing needs of developing countries.
It is recalled that in July 2024, Ethiopia secured a financial package through the First Sustainable and Inclusive Growth Development Policy Operation, totalling 1.5 billion dollars. This package includes a one billion grant and a 500 million dollars loan from the World Bank, aimed at bolstering the on-going economic reform initiatives.
The roundtable discussions highlighted the urgent financial challenges faced by many African nations, including Ethiopia. The continent is grappling with rising debt levels, exacerbated by external shocks such as the COVID-19 pandemic and geopolitical tensions. The debt stock in Africa has increased dramatically, prompting many countries to seek alternatives, including requests for debt relief.
Ethiopia’s proactive approach to managing its macro-economy could serve as a model for other nations facing similar challenges. By implementing structural reforms and focusing on sustainable growth, Ethiopia is positioning itself to not only survive but thrive in a challenging economic environment.
During the Washington D.C. 2024 World Bank and IMF Annual Meetings, Minister Ahmed also advocated for reforms within the Bretton Woods system to make it more responsive to the challenges faced by developing countries. He called for the establishment of innovative financial safety nets to provide affordable liquidity during times of crisis. The need for a robust response mechanism is evident, as many developing nations struggle to access necessary resources during economic downturns.
Furthermore, he stressed the importance of scaling up the financing capabilities of multilateral development banks. He argued that low-interest; long-term financing should be made available to developing economies to avoid the trap of accumulating unsustainable debt. Ahmed added the need for quota, representation and governance reforms and adjustments in the IMF to ensure that emerging markets and developing countries can have access to adequate financing and decision-making power proportional to their economic weight.
As Ethiopia embarks on this ambitious reform agenda, the road ahead is not without challenges. The country must navigate internal political dynamics, regional tensions, and external economic pressures. However, the commitment to liberalization, private sector growth, and fiscal discipline presents a unique opportunity for Ethiopia to redefine its economic trajectory.
By fostering a vibrant private sector, Ethiopia can generate jobs, enhance productivity, and ultimately improve the living standards of its citizens. As the country have over one hindered and twenty Million people the country should navigate different alternatives for it development and the livelihood of its citizens.
Ahmed had fruitful meeting with representatives from the International Finance Corporation and the Multilateral Investment Guarantee Agency (MIGA) on the side-lines of the 2024 World Bank and IMF Annual Meetings.
The meetings discussed Ethiopia’s efforts and reforms to boost private sector investments, including recent opening of the retail, financial and other sectors to international investors.
Ahmed briefed the counterparts on the implementation of the home-grown macroeconomic reform and the positive early signs of progress, including positive business sentiment from private investors.
The Minister expressed the government’s commitment to further deepen efforts to boost private sector investment, including in the energy, manufacturing, logistics, and telecom sectors with the aim to foster sustainable growth.
The two agencies commended Ethiopia’s efforts to create an enabling environment for investment while underscoring the importance of sustained efforts required further improving the investment climate and unlocking the full potential of private sector-led development.
The Minister requested the two agencies to scale up efforts to support private investments in Ethiopia taking into consideration the current favourable macroeconomic environment established for the private sector.
IFC’s Managing Director Maktar has affirmed his commitment to continue leveraging IFC’s technical support and mobilization of resources to support development endeavors in Ethiopia and expressed readiness to explore options in financing the new airport project development as well as rural development and agriculture initiatives in collaboration with other development partners.
Both IFC and MIGA expressed readiness and commitment to mobilize additional resources by leveraging all the different instruments, including the recently streamlined guarantees scheme available for the private sector.
The parties agreed to work closely to strengthen the partnerships, leverage more resources, and to jointly organize a high-level Foreign Direct Investment Roundtable workshop in Addis Ababa around January 2025.
Also, it is confirmed that the capital host the 23rd Horn of Africa Imitative Ministerial (HOAI) meeting in February 2025. The upcoming 23rd Ministerial Meeting in Addis Ababa is poised to critically assess the successes and prospects of the HoAI, aiming to further bolster the initiative’s impact on promoting economic integration through infrastructure development, trade facilitation, investment, human development, and resilience among its member states, which include Ethiopia, Djibouti, Somalia, Kenya, Eritrea, South Sudan, and Sudan.
Since its launch in 2019, the Horn of Africa Initiative has successfully mobilized approximately US 11.8 billion dollars, significantly advancing the strategic pillars of the initiative and making substantial strides in regional integration and development. The forthcoming meeting in Addis Ababa is anticipated to be a crucial event, continuing the collaborative efforts to achieve sustainable growth and stability in the Horn of Africa.
BY EYUEL KIFLU
THE ETHIOPIAN HERALD THURSDAY 31 OCTOBER 2024
