Audible financial policies and economic strength determine a country’s power and the ability to register development. This indicates that every country must have possibly strong and long lasting financial policies and strategies that can bring change and able to bring constant economic growth for a country.
In the present climate, Ethiopia is facing a number of economic challenges. Due to the existed conflict in the country, global unrests especially the war between Russia and Ukraine, and the global pandemic, not only Ethiopia but also the whole world is experiencing a trembling economy.
In the finance sector in particular, one can observe the challenges that the country has encountered regarding shortage of foreign currency. To respond to such economic constraint, the nation has been implementing possible solutions to lower the tension. One of the challenges that exacerbate the shortage of foreign currency is the expansion of black market in the country. Besides, the demand is obviously higher than the supply.
According to a report from the United Nations, Ethiopia has taken further steps to have a sustainable economic growth. For instance, it introduced its new currency notes two years ago. The introduction of the new currency notes has had targets. It helps the country to reduce forging the currency notes and the amount of money circulating in the economy outside the bank system. Further, the change of the currency notes deters cash hoarding through illegal businesses.
The report also mentioned that the change of the currency notes has served as a means to initiate will the public to open new saving accounts. According to the government’s report, within a month after the introduction of the new Birr notes, over 1.3 million new saving accounts were opened. As a result, the government further announced that the number of bank accounts in the country has increased by 31 percent. The World Bank report also disclosed that in 2017, only 35 percent of adults in Ethiopia had bank accounts. This figure puts Ethiopia far behind its neighbor Kenya where the figure is 82 percent.
Regarding the country’s economy, the government has taken several steps to lower the economic pressures and inflations. A simple illustration is the execution of Franco- valuta to import essential food commodities without foreign exchange permits.
In the current situation, the most important question to be answered is what is the viable way out of parallel market and the shortage of foreign currency? It is true that the nation is struggling to cover its foreign currency demand. At the same time, the expansion of parallel market is getting its peak. Aiming to manage this discrepancy, the government has taken corrective measures several times on those who are working on illegal foreign currency exchanges. However, the result is not that much comprehensive to give solution for the problem.
Having stayed with Ethiopian Press Agency, Economist Costentinos Berhe Tesfu (PhD) discussed issues related to parallel market. He said that as a nation, Ethiopia should take important lessons from international experiences that countries have been using regarding foreign exchange. The Government of Ethiopian should build bridges to narrow the gap between bank currency rates and the parallel market. At this point, it is witnessed that the exchange rate of foreign currency has a huge gap between banks and illegal agents.
According to the economist, international experiences have tremendous advantages for Ethiopia to find a solution for the parallel market. The government should take well-founded and serious actions and measures in order to fill the foreign currency exchange gap observed between the banks and the black market.
Regarding international experiences, the economist mentioned South Sudan as an example. As to him, South Sudan has taken a number of possible ways to narrow the difference and give answer to its demand on the shortage of foreign currency. Two decades ago, South Sudan used a system to alleviate the shortage of foreign currency by balancing the demand and supply scheme.
The economist has also mentioned other international experiences that Ethiopia can take a lesson from. He said, “For instance, National Bank of Sudan has been collecting billions of Dollar from the diaspora community with a view to keep the currency rate. In addition, Ethiopia should also look at some Latin American countries for the reason that these countries have become effective through stretching a system of foreign currency exchange in addition to the regular dollar exchange rate.”
In the current foreign exchange market, one can observe that there is huge gap residing between banks and illegal market. The economist disclosed that in banks, the value of a dollar this time is equal to 51.55 Birr. Contrary to this fact, the value of a dollar is over 78 Birr in black markets. This figure shows that the exchange rate in the bank and in the parallel market has a huge gap. This will definitely impose a serious impact on progress of the development projects of the country. The major factor that widens the currency gap is the shortage of Dollar in the banks, Costentinos added.
According to the economist, in order to tackle such economic constraints, the Government of Ethiopia has to execute strong economic laws and systems. The government is responsible to take corrective actions immediately to reduce the foreign currency shortage. This will help stabilize the market.
By the same token, while having a stay with The Ethiopian Herald, Tekie Alemu (PhD), an Economics Lecturer at Addis Ababa University on his part, discussed some possible solutions for the foreign exchange crisis in the country.
The lecturer noted that there are multiple factors that are exacerbating the existing foreign exchange shortage. To mention the major one, Ethiopia is importing large amount of products while exporting far less than that. This imbalance trade performance makes conditions more challenging for the country to cover its import expenses through its export revenue that contributes for the shortage of basic goods in the local market and resulted in inflation. In addition to that, the country has obtained foreign currency from loans and donations. However, those incomes could not satisfy the demand. The lecturer further pinpointed out that there are some foreign investors who are operating in the country, and they are sending foreign currency illegally to their origin countries.
According to Tekie, the abovementioned factors have hit the economy hardly. These illegal acts open doors for wide parallel market that adversely affect the nation’s economy. It is also the cause for the wide gap of exchange rate between the banks and black markets. This gap has been observed widely in the past two years. This obstacle needs thorough researches so as to identify and indicate the factors for exchange rate variation, Tekie added.
The lecturer concluded that Ethiopia should find a concrete way and practical approaches that can reduce foreign currency shortage in the country. He noted that the responsible body should use scientific ways to identify the cause and expansion of parallel market in order to take tangible measurements. If the aforementioned solutions are taken into consideration and properly applied, they will boost the export performance of the country, he opined.
BY DANIEL ALEMAYEHU
THE ETHIOPIAN HERALD THURSDAY 9 JUNE 2022
