• Economists seek recent economic measures to see intensity, continuity
With confirmed COVID-19 cases slowly climbing and already posing layers of challenges, the government is placing strings of measures to ease the unprecedented economic impacts of the pandemic in which experts said, should see continuity and intensity.
The government has been taking various measures since the virus was first reported in the country. And, as the economic repercussion of the pandemic is poised to intensify ahead, the country is moving into considering more steps.
The temporary exemption, cancellation of taxes, extension of debt repayment periods, and provision of a four-month-long employees’ income tax payment grace period are the latest steps the Council of Ministers introduced lately.
Previous measures include cutting interest rates and providing extraordinary liquidity assistance to some sectors and pushing for debt relief globally. The government has also availed 15 billion Birr to private banks to enable them to provide debt relief and additional loans to their customers.
The Ministry of Finance reported that the taxes to be called off are owed to the Ministry of Revenues and also include taxes that are due to an audit finding between the Ethiopian years 1997 and 2007. The government also makes a ten percent reduction for firms that pay their full tax at once. The government also announced a 1.5 billion additional liquid in terms of loans.
“As for the tax of firms in the timeline between the Ethiopian years 2008 to 2011, the decision made is to cancel the interests and penalties as well as to allow the firms to pay their taxes in the scheduled time frame. In doing so, they can pay 25 percent of the tax and the remaining sum on an installment basis during the course of a year,” Dr. Eyob Tekalign, State Minister of Finance, told The Ethiopian News Agency.
According to the new measure, firms are also allowed to withhold a four-month salary tax of employees, provided they are affected by the pandemic. So if a firm is paying salary to its employee without making income due to Coronavirus, the government will allow the firm to withhold its income tax contribution for four months,” the state minister elaborated.
Other economic measures include finance disbursement to encourage Small and Medium Enterprises (SMEs) and the provision of additional liquidity to microfinance institutions to avail credit.
The economic measures also take into account farmers’ cooperatives so as to ensure the smooth and uninterrupted supply chain that is fully intact, Eyob said.
The measures will have paramount importance to encourage and support firms to continue operating and ensure quick economic recovery when the pandemic is over, he observed.
Despite the measures, there are reports that the economic impact could get worse in the country if the pandemic is to stay long.
Dr. Gutu Tesso, President of Oromia Economists Association, tells The Ethiopian Herald that the recent measures could make slight difference but do not recover the weakening transactions. In fact, there is no one tried and tested approach or policy to arrest economic impacts triggered by a global pandemic. All the government must do is exploring every opportunity and mitigation measures as there is no way one out from economic crisis.
However, the first and most important objectify of the measures should be arresting the spread of the pandemic in the country. This time calls on emergency-related measures, not just the basic economic policies, he adds.
Measures like tax cancelation and cuts could be helpful to companies but do not stimulate transactions or will not help businesses to survive. Payroll tax reductions, provision of targeted credits, increasing local outputs are some of the measures the government needs to capitalize on.
“At a time of crisis, payroll tax reduction is well recommended to increase the buying capacities of citizens who solely rely on monthly salary payments. Ultimately this would slightly boost transactions.”
Targeted credit should be provided for small and medium scale enterprises as these entities provide their products to local markets. Providing resources to these enterprises is instrumental to keep production and consumption intact, he says adding actually, strong local companies are born out of a crisis. We need to use COVID-19 as an opportunity to create strong local capacity and efficient industries.
“As economists, we have submitted prescribed measures which the government needs to take. But so far a draft proclamation which has been consulted by economists is yet to be endorsed. We expect the lawmakers will approve it soon.”
There is no one-size-fits-all solution; it requires continuous recovery and mitigation interventions of economic impacts. All available options must be assessed and introduced. Some economic sectors are most vulnerable to COVID-19’s impact and some should continue to operate in this very trying time as Ethiopia has limited resources and cannot inject, unlike the developed nations, huge sum of money to stimulate the economy, Dr. Getachew Diriba, Chief Executive Officer of Ethiopian Economics Association told The Ethiopian Herald previously.
The Ethiopian government cannot underwrite the bankruptcy of the private sector. The government has already taken measures, such as extending the loan payment period, relaxing reserve and increasing the liquidity of small manufacturers.
“The national Bank indeed has taken a combination of emergency fiscal and monetary policy actions cutting interest rates and providing extraordinary liquidity assistance.”
The government is highly engaged in soliciting funds for COVID-19 counter mechanisms. The government may have to scale up the existing urban and rural safety- net programs to help communities even the people who would lose jobs due to the virus’ impact. Public-Private Cooperation is a must in this desperate time, according to the CEO.
Though COVID-19 is a global pandemic, the scale of the impact will depend on the respective countries’ preparation and containment mechanisms, so is the policy responses and experts emphasize the need for a customized policy response.
The Ethiopia Herald May 8, 2020
BY DESTA GEBREHIWOT
