According to the United Nations report, the war going on in the northern part of the country left 5 million Tigray people to misery, food dependent and other humanitarian crises. Two million people are displaced and 400 thousand are at the verge of starvation.
Following the escalation of the war by the terrorist TPLF in to Afar and Amhara regions since August 2021, more than 500 thousand people have become internally displaced in the two regions.
Because of the outbreak of the war, 1.7 million people have been vulnerable to famine in need of instant food aid in these regions. The war, in addition to posing humanitarian crises such as death and physical injury; is critically harming the nation’s economy.
According to the Report of the United Nations Secretary General on the crises in northern part of Ethiopia, the war consumed more than one billion Dollar from the government treasury so far.
The Ethiopian debt is becoming progressively greater; and the money drawn from partners that could be allocated for development is dwindling. Inflation is also alarmingly increasing and scarcity of basic food commodities in the market has been the day to -day phenomena.
The war coupled with COVD-19 is ravaging the nation’s economy and Ethiopia ranked 5th in Africa in the pandemic prevalence. People resided in towns out of the war zone are also economically hit and suffering from the rising price of basic goods and appealing their grievance to the government.
As a result, the regional governments including the Addis Ababa City Administration set obligatory prices on selected commodities and took administrative measures on trade enterprises those responsible for artificial inflation of goods including confiscating their commodities.
On the other hand, according to the Ministry of Finance recent report, the government local and foreign debt in the year 2020/21 budget year rose to 2.4 trillion Birr or 55. 6 billion Dollar. Out of the total debt foreign debt is 1.29 trillion Birr.
The report further said that, five years ago the nation’s foreign debt was 539.5 billion Birr. The government paid 1.2 billion Dollar during the past budget year to serve the debt. During the same period, however, it drew 1.4 billion Dollar loan from multinational financial institutions which is less than the previous time earnings as a result of lack of interest from the side of loan providers.
Besides, Due to the war broke out in the northern Ethiopia, international financial corporations restrained their interest to provide loan. As a result, the government allocated 1.8 billion Dollar for debt service in the reported budget year which surpassed the earned 1.4 billion Dollar by 432 million Dollar. This shows that the nation is forced to allocate more foreign currency to debt services.
During the last three years, the government planned to reduce the inflation rate in to single digit but unable to do so rather the rate rose to 22 percent, Atnafu G/meskel, an economist said. As to him, the inflation rate was raised to 25 percent last month and this indicates how the problem is deep rooted.
“The root cause of the problem is not the outbreak of the war rather it is the shortage of supply of agricultural products,” he said. Though agriculture is the main stay of the economy, shortage of the supply of its products exacerbates inflation, he added.
To resolve the shortage of supply, the government has taken importation of agricultural products as a way out and to that end it allocated significant amount of foreign currency but again the rising of the products’ price in foreign markets poses inflation in domestic market.
Currently, Ethiopia has been a highly indebted country and such situation again negatively affected the nation’s opportunity to obtain additional loan from multinational financial institutions because the situation might level as unable country to service her debt thereby faced difficulties to address the already existing economic problems.
In addition, the situation occurred due to the outbreak of the war in the northern part of the country is further exacerbated because of the prolonging of the crises and the importation of war materials which consume hard currency.
Repairing the debacle infrastructures, educational institutions, and reviving social interactions might consume the nation’s meager resources. Rebuilding investors’ confidence also needs a rigorous effort which takes some time.
So far, the nation has spent hard currency to support the war efforts which would have been spent for various development projects and to regain that amount of money, it might take a number of years.
However, the society’s aspiration to attain development is not stagnated rather it is enhancing so that it never waits for long. Hence, unless the government ends the war in a predictable time, the economy will be harmed and might be changed in to political crises.
While speaking concerning the war underway in the northern part of the country recently, Eyob Tekalighn (PhD), State Minister of Finance did not deny that it has its own consequences on the economy. However, he refuted that though the war put pressure, the pillars of the economy are not eroded rather there is better plan accomplishment.
“In addition to the human toll, it is obvious that it brought negative impact on the economy but the impact should be studied in detail. Due to the war repercussion, the government spent nine billion Birr only in one month for humanitarian aid. And when cost of the war is added as a result of extension of the war, the economic impact will be visible,” Eyob said.
In order to support the war effort, the government is forced to make budget transfer from other sectors. Therefore, the National Bank of Ethiopia introduced a very strong financial directive recently to avert the situation.
According to the directive, commercial banks are stipulated to increase the amount of money they deposit in the National Bank by one-fold, to increase the interest rate for the money they obtain in the form of short- term loan from the National Bank, to reduce the amount of money circulated in the market thereby reducing inflation. Though the measure slows down the economic growth, it has a positive impact in reducing inflation.
Currently, despite some challenges the economy faces, there are also healthy performances in some sectors. Last year, for instance, the agriculture sector registered 5 percent growth within ten months and the nation could earn 3.6 billion Dollar from the export trade.
Increment also witnessed in pulling Foreign Direct Investment but inflation seems to continue for some times in the future and various measures are being taken to curb the impact.
While reflecting his view in this regard, Professor Alemayehu Geda, an economist by profession and instructor at AAU said that the current burning issue of the nation in the economic front is the exacerbating inflation which is originated from structural problem. The foreign currency policy pursued by the government is responsible for the economic trauma.
“When inflation is raising, the purchasing power of the Birr will be decreased and at this juncture when the government officially devalued the Birr necessitates more Dollar for the importation of goods consequently the price of imported goods will be higher in the domestic market beyond the purchasing power of the ordinary people. Therefore, currently, the economy finds itself in the trap between exchange rate and inflation,” Alemayehu said.
He further said that side by side with the ongoing war, the continuation of party affiliated business enterprise’s dominant role in the economy made the crises uncontrollable. The capital flight conducted by some elements of the terrorists further worsens the situation.
Through his study findings he also he indicated that, in the periods when the EPRDF was in power from 31 to 37 billion Dollar had been flown out of the country due to illicit trade and illegal money laundering.
As to him, for the fact that such devilish act occurred in the time of peace and stability, it is not hard to imagine how much money will be flying out of the country in the time of war.
BY ABEBE WOLDEGIORGIS
ETHIOPIAN HERALD 21 SEPTEMBER 2021
