BY TEWODROS KASSA
Different sources show that the Ethiopia’s economic growth has been accompanied by inflationary pressure since the beginning of the 2000s. Debt burden, particularly external debt and budget deficits, instability in different parts of the country, the proliferation of illegal trading system assisted with illegal brokers and corrupted officials, and the market’s unpredictability have perpetuated inflation in the country.
Therefore, inflation has negatively affected the economic life of the great majority of the population. This has had severe implications for the welfare of wage earners prone to inflation and particularly those on minimum wages and pensioners with fixed incomes not subject to wage or income indexation.
According to experts in the economic sector, the major cause of the current inflation directly or indirectly related with the on-going terrorist TPLF attacks on the Ethiopian National Defence Force (ENDF) and various genocide acts on civilians across the areas of the country it escalated aggression. TPLF’s terrorism actions imposed unwanted costs on the country through a number of avenues. The terrorist TPLF incidental attacks have economic consequences on the country by diverting foreign direct investment (FDI), destroying infrastructure, redirecting public investment funds to security, and hindering trade activities.
Accordingly, when prices for energy, food, commodities, and other goods and services rise, the entire economy is affected. Rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate, and government bond yields, and every other facet of the economy.
Recently, the Ethiopian government has taken various measures to ease the rising inflation. For instance, Ministry of Finance announced that it has passed a decision to exempt tax and tariff levied on some basic food commodities in an effort to control inflation and stabilize the market in Ethiopia.
Finance State Minister Eyob Tekalegn (PhD) said that the ministry has passed a decision to exempt tax and tariff levied on imported and locally exchanged basic food commodities effective today in an effort to control the increasing inflation and stabilize the market. The government decided to exempt the tariff and tax even though this could bring income loss to the government, he noted, adding that the decision will benefit the people.
The commodities on which tax and tariff are fully exempted are wheat, edible oil, sugar and rice. In addition, value added tax on egg and Macaroni have also been exempted. The government is working to implement fair trading system upon the decision, controlling the terrorist TPLF economic sabotages, and undertaking tax reform on basic food items to alleviate the inflation challenges on the low and middle income society.
However, the State Minister said the government will lose billions of Birr due to the decision to be implemented for unspecified duration.
According to Dr. Eyob, the government has been taking monetary, fiscal and structural measures to increase the purchasing power of the people and is committed to continue doing so whenever necessary.
Improving productivity, especially in the agriculture sector, increasing supply, checking the market system and fiscal policy decisions are among the key actions the country is focusing on to sustainably control the increasing inflation. The government has also purchased 10 million quintals of wheat that are being transported from Djibouti. Moreover, the government has extended the Franco-Valuta License permit to import basic goods without foreign currency for the next six months.
The terrorist TPLF atrocities in various parts of the country have displaced many people internally in the past and many projects have been affected for the reasons related to the chaos. Following this, the low and middle income earning society is highly affected by the inflation and exposed to hunger.
The government is also working to controlling inflation and curbing the foreign exchange shortages by increasing national productivity in all sectors, the state minister said.
Further measures that aim at stimulating the economy will be taken including improving the capacity of revenue collection, expanding capital market, and privatization, he stated.
According to the information gained from the Central Statistical Agency (CSA), the overall inflation rate in August, 2021 was 30.4 percent. During the same month, the total food inflation was 37.6 percent while inflation of non-food items reached 20.8 percent. The major push factors for the growing inflation are prices for bread and cereals continued to rise; especially for teff, wheat, sorghum, corn, barley, wheat flour, pasta, and macaroni.
Economic experts recommended that the tax exemption is a good solution to the current high inflation rate. The success of any economic policy depends highly on the quality of governance, and its effectiveness, its zero tolerance for corruption, the enforcement of the rule of law and the strengthening of regularity arrangements as a necessary and sufficient condition to fight inflation. Enabling a smooth and free flow of information, avoiding any monopoly of information, dis-incentivizing hoarding behavior in commodity markets, and the elimination of organized parallel markets in the financial system, would also help in handling repressed inflation. This in turn, would enable society to anticipate price increases correctly and minimize the effects on the distribution of income, achieving stable economic progress.
In the meantime, the government’s decision to exempt taxes on oil, sugar, rice, wheat flour and pasta and macaroni will be a better solution to stabilize the market and influence the market price by the Ethiopian New Year. The inflation rate will show some improvement in September.
The tax reform has a direct role to boost domestic production of products and enables the government to arrest numerous illegal traders’ unnecessary price increment in the country. One of the foremost measures to control inflation is to increase the production of essential consumer goods like food, kerosene oil, sugar, vegetable oils, etc.
The Ethiopian Herald September 16/2021
