BY ABEBE WOLDEGIORGIS
At the opening ceremony of the establishment of new government led by Prime Minister Abiy Ahmed and the beginning of the 6th working year of the new parliament, President Sahlework Zewdie announced that the government will continue its efforts to tackle the economic problems with new spirit and dedication.
As to the president, during the last budget year, it was possible to stop the plummeting journey of the economy. In this regard the home- grown economic reform played crucial role. It helped to withstand natural and man- made crises which severely hurt the economy.
Inflation and economic crises still continued hurting citizens’ life which needs solutions. Much energy will be exerted particularly to reverse the sky rocketing inflation. In this budget year, the government will pay much attention to achieve multifaceted economic growth. To close the huge gap witnessed between demand and supply which is responsible for the aggravating inflation utmost effort will be exerted. In addition to this, to improve the rain fed agriculture and the distorted trade system efforts will be made, the president said.
The president further said that, to redress inflation, better monetary and fiscal policy will be introduced. Efforts also exerted to collect 600.9 billion Birr in the form of revenue in this budget year and out of this 83 percent of it will be generated from tax. In addition, the government will allocate 5.25 billion Dollar for the import and export trade of various commodities in the budget year.
According to Eyob tekalign (PhD), State Minister of Finance, the government has taken various measures during the last two years to stabilize price hicks of basic commodities. However, following the eruption of the war in the northern part of the country, some greedy merchants and others who intended to pose political instability, set artificial inflation on food commodities that critically hurt the low income people.
Commendably, Protection measures aimed at safeguarding the low income group from the rising of food items price has been announced by the government recently.
As to the State Minister, to manage commodity price inflation and to upgrade the society’s purchasing capacity, the government made some products free from tax such as wheat, edible oil, sugar and exempted value added tax from some locally produced food items like eggs, pasta and Marconi based on the newly introduced fiscal policy. He further said that with in few weeks 10 million quintals of wheat and 53 million litters cooking oil will be imported and supplied to the market.
According to the State Minister, by the New Year, the whole tax system will be improved and to stabilize commodity prices the government allocated billions of Birr.
It is not possible to stabilize the price only by tax exemption therefore, the government imported huge amount of sugar and other basic commodities to bridge the gap toward supply.
According to Eyob, to boost food items supply, importers are allowed to obtain foreign currency from banks and the permission is extended for the coming 6 months.
Side by side with this, other measures have been taken. Among these, whole sellers are obliged to supply goods in fair price and retailers who are responsible for artificial inflation should be accountable.
To enforce the laws with regard to tax and tariffs, directives are sent to the Customs Commission, the Ministry of Revenue and the Ministry of Trade and Industry.
While reflecting his views on the government’s action, Professor Mengistu ketema, the Ethiopian Economic Association Executive Director said that measures of the government bring only temporary solution for the pervasive inflation. The importation of wheat does not go in line with the government’s ambition to substitute the imported products by local ones.
He further said that in addition to shortage of agricultural products, the population growth aggravates the scarcity of food items in the market. Hence, enhancing agricultural production is vital. Instead of importing wheat, the government should create enabling environment to the private sector to engage in agricultural activities in a competitive manner and it rather better to give up monopolizing the economy and create favorable condition for free market.
Though used as immediate solution for the price hike, improving taxes on selected items by its own does not bring a lasting solution. Traders also explain their complaint with regard to the tax system. They pay tax when they import goods and again, they will be asked to pay additional tax when they distribute the products and the double entry tax ultimately incurs additional price on consumers that aggravates the pain induced by the inflation. Therefore, as to him, the tax law ought to be revised.
There are various commodities consumed by the public be it food or none food items and only forwarding solution by lifting tax on partial items does not meet the intended goal.
Atnafu Gebremeskel (PhD), an instructor at the Addis Ababa University department of economics, for his part said that the government measures taken to stabilize inflation brought positive outcome but they will not bring long-lasting solution. In fact, the measures enable to provide basic food items to the society in a very subsidized price.
The consumers could obtain five litters of cocking oil with 550 Birr in the market. When the government officially announced the price, retailers who hoard the products are forced to sell with fair price threatened by the legal consequences including the closure of their shop.
However, for the long -term solution, the government must plan a strategy. Because the nation’s economy is fast growing and there are numerous projects that need finance.
The ongoing war in the northern part of Ethiopia also consumes human lives and money on daily a basis but, though supporting the poor by stabilizing the commodity price is essential, putting tax exemption on food items for long might cripple the government tax collecting capacity.
The dwindling of foreign currency that has been drawn from foreign sources in the form of loan and grant has adverse impact by weakening the nation’s economy as a result of the war underway.
In fact, according to Professor Alemayehu Geda, an economist, researcher and instructor at Addis Ababa University, Ethiopia is struggling to survive with its ailing economy. Though the outbreak of the war in the northern part put strong arm on the economy, the fundamental reason for the prevalence of inflation is attributed to government’s financial policy.
Only in the past two years, the exchange rate officially reduced from 1 Dollar to 29 Birr to currently 48 Birr. After introducing the home – grown economic reform perspective plan with the advice of the international financial institution, the value of Birr is highly devalued, he said.
The multinational financial institutions claim that Birr is overvalued and such situation discourages exporters. Hence, to encourage them the profit obtained from one Dollar should be increased and the reduction of the value of the Birr can be taken as remedy. Secondly, they suggest that as Ethiopia imports more goods and services than it exports, if it reduces the value of Birr the volume of the imported goods also reduced. In contrary, the volume of the export goods will be increased and the balance of debt payment also will be adjusted.
But Alemayehu disagree on the remedy forwarded by the multinational financial corporations. As to him, the Ethiopian export problem lies on supply not on the value of Birr.
Few years ago, the earned Dollar from gold export was diminished to 20 million Dollar but currently because of the exceeding of supply as compared to the previous time, the nation could earn 600 million Dollar. There fore, the solution must focuses on increasing supply of products.
All the imported goods are very fundamental and essential. Ethiopia allocates 3 billion Dollar annually for the importation of petroleum and petroleum products. Other imported goods are utilized as inputs for industries and 65 percent of producing firms’ inputs is imported from abroad. Others import items such as pharmaceuticals and fertilizers are very essential to the nation. Even if the price of the imported goods is soaring in the international market, importing them is obligatory. Hence, the devaluation of the exchange rate of the Birr against the Dollar is not a solution it rather aggravates the inflation, he opined.
The Ethiopian Herald October 7/2021
