The government has been working since the day after the reform to address the bottlenecks that have plagued the Ethiopian economy. To address the country’s economic woes and sustain economic growth, the government has formulated and implemented an economic reform agenda. Prime Minister Abiy Ahmed, in response to recent questions from members of the House of Representatives said that the economic reform has made great strides in most sectors.
He said that one of the challenges in Ethiopia’s transformation is the state of the country’s economy. He explained that due to severe budget deficit in the country; it was difficult to pay salaries and that it was difficult to continue the growth process. He recalled that the country was in a difficult situation to earn more money due to the high debt burden.
The government as to him has been able to make significant progress in most sectors as it has formulated and implemented an economic reform agenda to address the situation and sustain the country’s growth. He said the economic reform agenda had three main pillars. Correcting the distorted macroeconomic was one of the pillars of the reform as the country’s economy was in a state of extreme macroeconomic turmoil, he noted.
According to the Prime Minister, the second pillar of the reform is the identification of structural bottlenecks that hinder the economy from moving in the right direction and speed. The third pillar that deserved focus in the reform agenda is to increase production and productivity by utilizing all the potential of the country in the manufacturing sector. This means investing every penny, time, and knowledge in a resource-generating sector.
He added that the reform agenda has been achieved in the last two years and has yielded results in many sectors. One of the areas where the results have been achieved is to reduce the budget deficit and reduce the huge debt burden. Ethiopia owes 31 percent of its gross domestic product only from foreign debt, he explained.
As to him, foreign debt, which accounts for 31 percent of the country’s Gross Domestic Product (GDP), has to be repaid in a short period of time and has high interest rates. This put the country at great risk to get extra loan.
Due to the effective work done on the loan, the debt ratio, which has reached 31 percent of the GDP, has been reduced to 25 percent. This has opened the door for more loans, believing that the country can afford to pay more, not just borrowing.
Much work has been done not only to reduce debt, but also to change the nature of debt. More work has been done to shift high-interest loan to low-interest commercial loans that be paid back over a longer period of time and more work is being done, he said.
According to the Prime Minister, converting most of the commercials to concessions will reduce the country’s spending on foreign debt and provide an opportunity for development work. In this regard, the work done is very promising. This successful work must be strengthened.
The second issue on the reform agenda is the private sector. Because most of Ethiopia’s resources are collected from all sources and used for government projects, he explained that the private sector has been holding back from playing a role in the country’s economy due to lack of funding. The private sector is made up of many creative people and people who create a lot of jobs everywhere.
However, the sector was struggling financially. As a result of financial shortfall, the sector could not contribute its part to the economy. He said the lack of adequate financing of the private sector will slow down the overall economic activities so that attentive work was underway to alleviate the problem.
Thus, the budget allocated to the sector has been increased. In order to support the sector there is a big difference between the budget approved by the House of Peoples’ Representatives in 2018 and the budget allocated to the sector this year and this indicates attention to the sector, he explained.
According to the Prime Minister, in 2018, the private sector received 90 billion USD in loans from banks whereas this year, the private sector has earned 160 billion USD. With this money, it has the opportunity to complete the work that has stopped everywhere, to start new projects and to complete the existing buildings.
Adding, he said that this success is not just about increasing the amount of money. Rather, excellent works have been done in identifying and resolving major bottlenecks in the financial sector. One of these activities was the removal of 27 percent of the money deposited by banks in the National Bank of Ethiopia.
Prior to the reform, each private bank had to purchase an additional 27 percent of its customers’ bonds. In addition to the pressure on private banks, it had its own pressure on large-scale depositors not to work vastly, so the 27 percent was lifted; and most of the money they deposited at the National Bank was released ahead of time.
These measures are to stimulate the financial sector. Since, The Commercial Bank of Ethiopia (CBE) was made to provide large amount of money to the private sector, the use of resources in the private and public sectors has changed. It has opened the door for the private sector to get better attention and resources, he said.
Working better to focus on economic sectors that increase productivity he also mentioned that there are other areas in the reform agenda that have been worked hard over the past two years. The Prime Minister cited the agricultural sector as an example. Over the past two years, agricultural inputs have increased dramatically. Not only the increase in agricultural inputs, but also the facts that in many regions, if farmers cannot afford to buy agricultural inputs, all types of agricultural machinery have been imported duty-free with the support of the regional governments, so that they can provide inputs to farmers in the form of loans.
The farmer did not have the opportunity to get money from the banks, despite the land he already had. It is important to change this situation, even if the farmers do not have a building as collateral; with their cattle, land or resources on the land, People who have saved money, in particular, have the opportunity to get more loans and buy tractors and other machinery. This is making a real difference in the manufacturer industry. He also said that tangible results are being seen at the moment and the results are increasing over time.
According to the Prime Minister; in addition to agriculture, there is a focus on the manufacturing industry. In particular, after the breakout of corona, the manufacturing industry has been given the lead to focus on products needed for local and foreign consumption for the time being. For example, markets for sanitizers, mouth and nose masks, gloves, and weekend wearing have been made available at home and abroad.
With the necessary support gained from abroad such as through negotiation with the government of Djibouti, the manufacturing industry has had the opportunity to go through a difficult period without losing workers.
Regarding minerals, Prime Minister Abiy said Ethiopia is losing what it deserves as a result of contraband and that other countries are taking advantage of it. To address this, the National Bank of Ethiopia (NBE) has been able to stop the massive flow of products from the country. Fortunately, as a result of the crackdown due to coronavirus, smuggling has been reduced to some extent. He also said that it was able to store large quantities of gold into the National Bank during the corona season alone.
The key issue is the impact of every step and wealth growth on the country’s economy; it is important to measure the growth of each wealth and every economy in terms of its contribution to GDP growth, he said.
Ethiopia’s gross domestic product (GDP) has increased significantly since the reform. Ethiopia’s GDP in 2018 was 2.2 trillion Birr; but now has reached 3.4 trillion Birr as a result of extensive measures taken following the reform. That means, it has now reached more than 100 billion USD which was about 85 billion USD. This is a huge step forward.
He explained that if the pressure on inflation can be corrected alongside the results set to increase the country’s gross domestic product; it will make the result stronger.
In addition to gross domestic product, there has been a significant budget increase. According to the 2018 budget approved by the council, 89.2 billion Birr has been set for the capital budget. In 2021, however, 160 billion Birr was allocated for the capital budget. Thus, the capital budget alone showed a difference of 71 billion Birr in two years. The capital budget is crucial to answer questions on roads, health, education and various infrastructures, he further explained.
On the budget allocated to some sectors, more than 50 percent increment was recorded in two years. For instance, in 2018, 21 billion Birr was allocated for Agriculture and Irrigation Development and now, it is grown up to 33.4 billion Birr. The growth is huge in terms of time. If more than 50 percent of the budget growth is repeated, it is possible to make a big difference, he stressed.
In addition, 58 billion Birr is budgeted for roads this year which was 28 billion Birr in 2018. The budget has grown by more than 50 percent in two years. An additional 30 billion USD has been invested in the sector.
Cooperation of the community is essential not only in the budget but also in the strength of the contractors, the strength of the contract management while the resources allocated are crucial to grow the sector that it is possible to record results, he explained.
The budget allocated for education in 2018 was 19 billion Birr and now it has increased to 24 billion Birr. Significant investments have been made in all sectors, especially in terms of budgeting, poverty reduction and increased productivity. He explained that if this can be strengthened in the coming years, prosperity can be achieved.
The Ethiopian Herald August 4, 2020
BY BACH ZEWDIE
