It is well recognized that Ethiopia has embarked on full implementation of macroeconomic re-form policy, and in this recently commenced game-chanting policy, the government has been implementing numerous economic reforms to address longstanding structural problems, including debt burden, inflation, unemployment, and low productivity following the political change that ushered in 2018.
Of late, The Ethiopian Herald approached Taddese Gobena, an economist graduated from Civil Service University, to have a professional opinion about the recent reform, centering the achievements, limitations, the procedural undertakings, and the way forward to make the eco-nomic progress sustainable.
He said, “The first phase of the Home-Grown Economic Reform Program, which was introduced in 2019, included policy ideas from macro-financial to structural and sectoral facets and has come up with meaningful changes. Through this initiative, Ethiopia has achieved epoch-making economic objectives, correcting imbalances, alleviating debt, and expanding growth sources, alt-hough there are areas that need further reform undertakings.”
As to him, the rapid growth will be sustained through stepping up efforts to finalize ongoing public investment projects; increasing private sector investment facilitated by the reform agenda are balancing and diversifying the sources of growth. The prudent monetary policy will help the nation help control inflation, ensure debt sustainability thereby supporting the dependable growth.
According to Taddese, the key pillars of the Homegrown Economic Reform Program, the second phase of the country’s economic transformation efforts including establishing a modern macroeconomic policy framework to ensure stability and resilience as well as boosting competitiveness by improving the investment and trade environment, expanding productive capacity and productivity across sectors, enhancing public sector capabilities for efficient service delivery.
He further stated that the comprehensive reform agenda will enable the country to achieve high and stable economic growth, maintain single-digit inflation, and build a globally competitive economic system, and the reform measures also target a range of issues, including foreign exchange distortions, financial sector strengthening, inflation control, tax revenue mobilization, and improving the business climate.
The government has secured significant development financing to support the implementation of the reform by laying the foundation for strong, private sector-led, inclusive growth and job creation, he added.
“It is also obvious that there are some negative impacts in relation to the macroeconomic reform, but to mitigate any short-term negative impacts, the government has pledged to enhance social safety nets and provide subsidies for low-income workers and fuel prices. Though the macroeconomic reform program will be subject to continuous monitoring and evaluation, there is the government’s readiness to make timely policy adjustments, and transparency and stakeholder engagement will be key priorities throughout the process. The bold move is a critical moment for Ethiopia’s economic transformation with decisive leadership and effective implementation, in-deed,” Taddese underlined.
The government has to be committed enough to sustain rapid economic growth, building a resili-ent and diversified middle-income-level economy achieved through raising agricultural produc-tivity and incomes of small-scale farmers, diversifying technological upgrading and innovation expansion, booming inclusive and sustainable industrialization, as well as bolstering a compre-hensive digital economy, he added.
Besides, he said, building an emerging market economy-level modern policy and institutional framework and coming up with an efficient, resilient, and well-functioning financial market sys-tem that provides affordable access to finance to investors and consumers is another viable means to make a difference.
High public investments in infrastructure and human capital development fueled the country’s growth indeed; he said these investments narrowed fundamental gaps in transport and energy infrastructure and human capital developments, thereby laying the foundation for a sustained growth. However, the public investment led growth model had its shortcomings. While significant strides have been made, both GTP I and GTP II have not entirely been successful in achieving structural transformation and stimulating exports.
As to him, as the serious macro-economic imbalances— foreign exchange shortages, increased risk of external debt distress, growing financial sector vulnerabilities, limited access to finance for the private sector, high inflation, and potential misallocation of resources are regarded as potential challenges, the country is doing all its best to address these macro-economic imbalances in collaboration with development partners.
Targeting at addressing such trying challenges, the government has launched a comprehensive and well-coordinated homegrown economic reform agenda with the goal to safeguard macro-financial stability and rebalanced and sustain economic growth. The reform agenda builds on the achievements of the past decade in infrastructure and human capital developments. The primary objective of the agenda is to sustain the economic growth through creating an economic environment supportive of higher private investment and structural transformation, he stated.
The reform centers strengthening public finances through improving privatization intensity, gradually moving towards a flexible exchange rate regime towards addressing external imbalances, strengthening the monetary policy framework with the objective to stabilize prices and support economic growth and enhancing financial sector development and developing capital markets, he added.
As to Taddese, implementing the proposed reform agenda requires mobilization of financial and non-financial resources. Enhancing domestic revenue mobilization, particularly significant improvement in tax collection, coupled with external resource mobilization will be at the core of the reform agenda’s financing strategy.
The concerted engagement of all segments of society— private sector, academia, and civil society— is quite important; thus, broad consultations needs to be undertaken throughout the reform period to enhance ownership of the agenda by all stakeholders. Yes, he said, exploiting Ethiopia’s untapped tourism potential also entails both the development of new and diverse tourism products, as well as the improvement of infrastructure and support services in existing sites.
Much of Ethiopia‘s tourist-related infrastructure is in poor condition and lacks investment. Investing in the upkeep of attraction sites and the infrastructure around these sites, and encouraging federal and regional incentive packages to promote private investment in tourism will be key measures to unlock the potential of the tourism sector. Private investors have to be encouraged to engage in the management of key national tourism sites such as national parks, he added.
Unequivocally, Ethiopia’s recent macroeconomic reforms, supported by the International Monetary Fund and the World Bank could have profound implications for the country and the region at large. The financial package aims to tackle pressing issues such as inflation, foreign exchange shortages and debt sustainability.
“As far as my understanding is concerned, Ethiopia’s macroeconomic reforms represent a bold attempt to head towards economic stability and growth, and it has attached due emphasis to using interest rate policies effectively, keeping the central bank independent, and managing the transition to a floating exchange rate,’ he said.
According to Taddese, the National Bank of Ethiopia has been given a more active role: manag-ing the economy by setting short-term interest rates, in addition to its regulatory oversight of the banking system. For this policy to achieve its desired effects, several conditions must be met: the central bank must be independent and its decisions could be influenced by the government’s pri-orities; the formal financial sector has to be well developed.
In economies, where the financial sector is well developed, changes in interest rates can influence borrowing, spending and investment decisions and the bank must be able to collect, analyze and communicate economic data as reliable data is crucial for setting optimal rates and monitoring economic conditions.
As to him, the country faced a serious macroeconomic imbalance caused by debt, foreign ex-change shortages, exchange rate fluctuations, export difficulties, and inflation. After recognizing this macroeconomic imbalance, the government designed a new three-year project for 2019, which was the Home-Grown Economic Reform Agenda (HGER) to correct the macroeconomic imbalance.
He further stated that the Homegrown Economic Reform Agenda consisted of three pillars. The-se are macro-financial reforms, structural reforms, and sectoral reforms with the aim of achieving macroeconomic stabilization and returning to a path of high growth. These reform measures should be comprehensive and well-coordinated in order to create a positive feedback loop.
In sum, the country has to primarily focus on bolstering the reform agenda to make it reliably fruitful by developing legal frameworks to enhance implementation capacity, enhance productivity of farmers and pastoralist through provision of modern inputs and service; modernizing live-stock production through improving veterinary infrastructure and establishing linkages with other industries; establishing effective linkage between agriculture producers and commodity markets as well as the commercial value chain; accelerating growth in agricultural production with a focus on strategic crops for import substitution and exports; developing a legal framework for agriculture focused financial services. In so doing, the desired change would be secured, and the reform is confidently pushed into fruition.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD SUNDAY EDITION 10 NOVEMBER 2024
