Over the last ten years, Ethiopia’s socio-economic development was seriously challenged by a host of bottlenecks that were observed in the economy. These include among others, failure to achieve quality economic growth, huge distress on external debt and debt servicing, marked imbalance between domestic saving and investment, inability to stabilize inflation, alarming rise in unemployment, limited access to financial sources, low level of social services and limited capacity of government and proliferation of multi-faceted malpractices.
Ever since the issuance of Ethiopia’s Home Grown National Economic Reform Policy in 2021 and the Macroeconomic Reform Program in 2024, Ethiopia has continued to engage in a paradigm shift on a pathway to economic development through the country’s integrated socio-economic reforms that are unfolding with reasonable momentum.
Reporting to the meeting chaired by Prime Minister Abiy Ahmed on the third quarter of the fiscal year and 100 days of achievements over the past nine months, the Ministry of Planning and Economic Development forecasted that Ethiopia would register 8.4% economic growth over the current fiscal year.
What were the main reasons for the successes attained over the year? Undoubtedly, leadership commitment and professionalism, strict follow up on the performance and financial transparency and accountability is one of the reasons why the nation registered such results.
Moreover, follow up made on smooth operational linkage between the major pillars of the economic reform particularly in agriculture, mining, service sector and infrastructure development has been instrumental in achieving the successes.
The Home Grown Economic Reform (HGER) was designed to achieve major macroeconomic gains which were indeed very difficult over the past decades in the country. The aims of the reform were to ensure rapid economic growth, maintaining stable macroeconomic development by reducing debt vulnerability by creating sustainable job opportunities, further enhancing the supply side of the economy by increasing productivity and competitiveness and accelerating the transition from public leadership of the economy to the leadership by the private sector. The economic reform program primarily focused on macroeconomic reform, sector reforms and structural reforms.
The writer of this article has lived enough to see the major trends, zigzags and economic disequilibrium Ethiopia has faced. For the last 50 years, no years have passed without war and conflicts as well as recurrent drought and other forms of disasters.
The transition from feudal economy to command economy and then to revolutionary economic reforms, despite the public expenditure invested on them all, failed to bring meaningful economic development. Moreover, 30 years of war in Eritrea, 17 years of battle with TPLF, and several other wars in the country devastated the national economy, dwarfing the economic well-being of the people of Ethiopia.
Ethiopia’s socio-economic reform program that kicked off in 2018 covered multiple areas including legal, CSO issues and more importantly economic reform programs that effectively unfolded over the last two years. The author wishes to outline some of the sector, structural and macroeconomic reforms that are already bearing remarkable results.
Ethiopia is now engaged in integrated policy implementation based on Climate Resilient Green Economy policy and strategy, Home Grown National Economic Policy, agricultural and industrial policies and strategies that have so far proved to be relevant, inclusive, natural resource driven, and effectively workable.
Blending policies with implementation strategies and planning has resulted in making Ethiopia one of the fast growing economies in Africa. The link between economic base and super structural reforms combined with leadership commitment in all sectors and technological innovations like Digitalization of the commanding heights of the national economy and utilization of AI have helped to accelerate the economic development of the country.
Transforming the major industrial parks into economic zones and development of free trade areas have already set the ground for promotion of industry and agriculture based foreign trade and quality export commodities.
The new initiatives of Basket Bounty, Made in Ethiopia, corridor developments, summer and regular irrigation programs, special focus made on mining have all been integrated into introducing new economic ventures not only for Ethiopia but for Africa at large.
Ethiopia is the only country in Africa which is implementing the policy and strategy of power integration in Africa by sharing clean hydroelectric power with Sudan, Djibouti, Kenya and for South Sudan and Tanzania in the current fiscal year. This clearly indicates that Ethiopia’s economic development is in line with African economic integration and African Continental Free Trade Area and the strategies outlined by AU on Agenda 2063.
Over the last several decades, Ethiopia continued to grapple with several major macroeconomic challenges, which impact its economic stability and development prospects. These, among others include: foreign exchange shortages, high Inflation rate, fiscal deficit, unemployment and poverty, inadequate infrastructure development, periodic political unrest and ethnic tensions, dependency on agriculture, very low access to finance for development, lack of good governance, corruption, contained and illicit financial transactions , climate change induced drought and flood, landslide and low linkage between industrial sectors.
During the last six years of the socio-economic reform period in the country, Ethiopia has been taking a number of fiscal, monetary, financial and legal reform measures to thrust off from these age old economic shockwaves mentioned above. The measures include the Home Grown Economic Development Plan and Ten Years Perspective Economic Development Plan that focused on promoting the economic transformation of the country as a pathway to prosperity and development.
According to a Statement issued by the Office of the Prime Minister, on the 28th of July 2024, Ethiopia has officially embarked on comprehensive macroeconomic reform policy implementation. In his policy statement on the nation’s Macroeconomic Reform Program Policy, Prime Minister Abiy Ahmed stated that the government has been implementing numerous economic reforms which aimed at addressing longstanding economic structural problem and challenges including debt burden, inflation, unemployment, slow economic structural change, low sector productivity and competitiveness, poor performance of development projects, and resource mismanagement.
Prime Minister Abiy elaborated that the first phase of the Home-Grown Economic Reform Program (HGER 1.0), introduced in the 2019 fiscal year, and included numerous policy ideas ranging from macro-financial to structural and sectoral. Through the implementation of the HGER 1.0 Ethiopia has achieved significant economic objectives and goals. Despite the remaining reform areas, efforts to correct macroeconomic imbalances, alleviate debt burden, increase domestic production capacity, expand sources of economic growth, create job opportunities, and address structural bottlenecks have yielded positive results.
He noted that from 2019 to 2023 fiscal year, Ethiopia’s economy registered an average GDP growth rate of 7.1 percent. Consequently, Ethiopia has become a significant player in the African economic landscape and has demonstrated its commitment to achieving the Sustainable Development Goals. The country has built the largest economy in East Africa and the third-largest economy in sub-Saharan Africa.
He further noted that second phase of the Homegrown Economic Reform Program (HGER 2.0), based on four pillars reaffirms the government’s commitment to completing the remaining macroeconomic reforms. This includes (1) establishing a modern and sound macroeconomic policy framework that supports and ensures stability, resilience, and sustainability; (2) to transform investment and trade environment to boost competitiveness through a favorable environment and opportunity that promotes and enhances innovation and entrepreneurship, (3) to expand productive capacity and productivity growth by increasing investment and unlocking economic growth potentials, and (4) to improve public sector capability that enhances the government’s capacity to ensure quality and efficient service delivery.
Among other things, the reform measures aim to correct foreign exchange distortions, strengthen the financial sector, control inflation, increase tax revenue, improve the efficiency of government investment, ensure the sustainability of government debt, and enhance the competitiveness and soundness of the banking sector.
The primary policy measures and expected national benefits and outcomes of these macroeconomic policy reforms included:
Market-based foreign exchange rate regime: Market-based foreign exchange rate regime is critical to relieving FX shortages, removing constraints to private sector investment and growth, aligning the prices of imported and exported goods and services with market realities. This approach also addresses imbalances in the balance of payments and offers numerous additional benefits.
Introducing Interest Rate-Based Monetary Policy Framework has become crucial step in implementing macroeconomic policy reform for modernizing the monetary policy framework. As part of the National Bank’s three-year strategic plan to maintain low and stable inflation, the Bank is focusing on developing a monetary policy system centered on interest rates in its dealings with commercial banks. The National Bank of Ethiopia has already begun implementing this policy reform. Fiscal policy reforms outlined in the macroeconomic policy Reform Program aim to alleviate pressures on public finances.
When integrated with the aforementioned monetary policy reforms, these measures will help stabilize the macro economy. The primary focus of the fiscal policy reform is to enhance government revenue which has markedly increased over the last nine months of the fiscal year. Key measures were taken in improving the effectiveness of government spending and the subsidy system, implementing structural reforms in pension fund systems, increasing the efficiency and competitiveness of state-owned enterprises, and ensuring effective and efficient public debt management.
In a recent report issued by the Ministry of Planning and Development in review of the achievements in the last 9 months, landmark achievements were made in agriculture during the meher season, progress in the construction sector in the production of cement and steel, tourism development and digitalization of the major economic activities, better regulation of government spending, increment in foreign currency reserves, the reduction of GDP ratio to investment to 13.7% and 3.5 billion USD in debt rescheduling.
In terms of reducing unemployment, 244 thousand citizens have accessed foreign employment while some 45 thousand had access to online employment services. Subsides were provided for fertilizes, fuel and medicaments.
BY SOLOMON DIBABA
THE ETHIOPIAN HERALD SUNDAY EDITION 20 APRIL 2025
