The government of Ethiopia has launched a “Homegrown Economic Reform” agenda aimed at unlocking the country’s development potential. While launching the initiative on September, Prime Minister Abiy Ahmed said the initiative aims to push Ethiopia into becoming the African icon of prosperity by 2030.
Following the initiative, different global organizations like World Bank, International Monetary Fund (IMF), and other development partners have pledged to provide all the necessary support for the realization of Ethiopia’s homegrown economic reform agenda.
IMF on Friday approved a landmark, three-year 2.9 billion USD financing package to support Ethiopia’s economic reform program, which is 700 percent more than its quota. Finance State Minister Eyob Tekalign said that WB and IMF have pledged to cover about 60 percent of total finance needed for its three years of economic reform. The fund would be in a form of assistance and a loan.
“The economic reform we have initiated needs huge amount of finance and we cannot collect this resource with our current potential,” the state minister said, adding that “the good news is our global development partners, particularly WB and IMF agreed to cover over half of the funding for this ambition economic reform.”
In an exclusive with The Ethiopian Herald, Economist Dr. Gutu Tesso said that the assistance provided by IMF and WB is essential and timely to propel the country towards prosperity if it’s allocated for the required purpose properly. The finance is very important for Ethiopia to realize the initiative as well as to reduce its ballooning debt burden. However, the support provided by the financial institutions need due attention while using it. “If not, it may cause another burden which can spiral the country into danger.”
Dr. Gutu stated that the finance must be allocated for the required purpose only. Compared to the potential that the country has, it is important to balance needs and wants and the government has to give due attention to cost reductive activity. On the other hand, government structures, both at federal and regional level, will need to amass the skill and capacity to manage finance properly, he opined.
For him, strengthening the managerial capacity, and reviewing previous gaps is crucial, and needs serious attention. He cites the failure of the 10 billion birr revolving youth fund – which was setup to create jobs for young people across the country – in bringing the desired output due to management gap.
He said different reports showed that for the past three decades there was a huge capital flight that nearly amounted to one billion USD. The various bilateral and multilateral financing agreements that were signed during the mentioned period were improperly used whilst adding a burden to the country. “The important thing is how to use the finance properly.”
Besides, the government needs to take the necessary precaution by taking into consideration that extra usage of allocated finance for other political and related purposes is dangerous for the country, he stressed.
Also, the government needs to identify the sectors in which the finance will be allocated. Identifying the sectors helps the government to easily control their performance, and help their proper finance use and success, Gutu said.
On the other hand, receiving finance at this time helps the country in reducing debt pressure which increases economic activity and helps the country to import the necessary input for industries and other sectors.
As to Eyob Tesfaye (Ph.D.), a macro economist working for the UNDP, the finance approved by IMF to help the homegrown economic reform is timely and important for the country, and the finance can make a big difference. Moreover, it will open the economy for international investment as it helps balance the macro-economy, because international investment needs macro-economic stability.
The IMF financial support by itself does not solve the problem, and the country has to use it wisely, he argued. The government has to focus in bringing structural transformation to the economy, particularly, and controlling domestic economic issues like inflation, boosting productivity, and creating jobs, among others.
On the other hand, identifying the reform sectors is important as some issues need immediate response and prioritizing. To know exactly where the finance is allocated or to make sure if it is used for the intended purpose, the Prime Minister himself has to supervise it, along with an institution that is led by professionals, he concluded.
The Ethiopian Herald, December 25/2019
BY HAILE DEMEKE
