BY ABEBE WOLDEGIORGIS
The Ethiopian economy faces various challenges. The macro economy instability has taken the lion share in this regard. The government took various measures to redress the problems but the outcome is below the expectation. The economic crises occurred all over the world and domestic unfavorable situations due to conflicts affected the government measures not to meet the targets. Tewodros Mekonnen is an economist who works in various international organizations.
As to him, three years ago the government took measures to address the macro-economic imbalance. One of the implementation of the objectives of the home grown economic reform was to repair the economic anomalies witnessed for decades. He further said that, he taught that key points put in the economic reform documents could have address the problems step by step.
The economy is dominantly run by the government and some of the root causes of the problems are structural and multi-dimensional. In the recent past the good performance visible in the construction was encouraging but its finance source did not show its sustainability which intern created anomalies in the macro economy.
In addition, the commercial bank of Ethiopia transferred 60 percent of deposited money to the government. This indicated that most of the money available in the country goes to the government to cover its expenditure cost.
The burgeoning infrastructure attributed to the government fund. The public money is allocated to the Ethiopian Electric Power, to the rail transport, sugar projects and others. But though some of the projects are accomplished, some money was wasted and corruption also was pervasive. In order to save the money from corruption and mismanagement there needs to take strong action. When huge amount of money goes to the government projects, it makes private sector finance sources to be dried up.
As to Tewodros, when he was working in the commercial bank of Ethiopia in 2004 EC, he remembers that banks where borrowed money each other. There was no shortage of hard currency. Later the government began to implement expensive projects which need huge amount of hard currency and later posed shortage of hard currency. That time the construction center was booming and needs more hard currency to import machinery and other spare parts. Hence the economic growth witnessed in the past was at the cost of weakening the currency reserves in the banks.
To fill the gap between demands and supply of hard currency, the government introduced some solutions in the home grown economic reform scheme. The efforts that has been undergoing to introduce capital market can be seen as part of it.
The borrowing of money by the government from the local banks brought repercussion by aggravating inflation. To reverse the situation the home grown economic reform suggested that government better to reduce its borrowing.
As to Tewodros, some of the reform measures have been brought tangible results. For example, pension institutions were forcefully ordered to purchase the government store document by simply assuming that they have sufficient money. Now that is changed and banks began to compete for purchasing government store document by paying huge amount of money. Because of this, the National Bank of Ethiopia instead of printing paper money which aggravated inflation resorted to obtain money from the government store documents. In the last 4 years, the government could obtain 200 billion birr from the government store bid documents.
It gave up to somehow printing paper money which creates havocs on the economy.
However, right after the introduction of the home grown economic growth reform introduced, things went in dis array. Within a year in 2019, COVOD 19 broke out and the implementation of the reform was disrupted and government again began to borrow money from local banks. It predicted that money which comes from abroad will be dwindled due to various reasons and began to repeat the past practices. This again put pressure on some activities carried out by the reform plan.
The out brake of COVID 19 directly affected money channeled here from outside sources. When countries are hit by corona virus, Ethiopian diaspora reduced sending money here to their parents in the form of remittance. Reduction also witnessed in some export commodities such as textile and coffee. But no sector was affected by COVID 19 than the tourism sector. The sector lost its 77 percent of hard currency income. This incurred heavy damage on the nation revenue which intern put drawback on the reform program.
As to Tewodros, had the projected that been implemented completed on time, overcoming the crises would have been possible. For instance, had the sugar projects been completed, exporting sugar products and earning hard currency would have been realized. Repaying the debt spent for the construction of the sugar factories would have been realized. Had electric power dams been completed, earning hard currency through exporting energy would have been possible. Industry Parks also would have been flourished by manufacturers and boost export. But it was impractical. Due to the absence of sufficient scrutinizing of projects on the part of the government projects, money was plundered and delayed. Corruption is also rampant. Not only projects are delayed but also their quality is compromised. When this happen the projects would never realized what was planned. Industries failed to produce better quality products and earn hard currency from export. The malpractices that have been rampant on project accomplishment criticized by the economists but the government did not hear their plea.
The home grown economic reform put the mechanism in how to tackle chronic problems existed in project accomplishment and among the majors is not to start new project without finishing the existing one.
Studying the problems that delayed the GERD and fore warding solution by the government was exemplary. Great efforts were exerted to resume the GERD project but still it is delayed than the intended time for the accomplishment. But this does not mean that corruption is eradicated or there is no problem.
In addition to the out brake of COVID 19, the war ignited in the northern part of the country further aggravates the anomalies created on the economy. The war critically crippled the hard currency that had been drawn from foreign sources in the form of loan and aid. While the nation was struggling to overcome COVID19, the war in the northern part broke out and hit the nation debt repayment balance. The out brake of war between Russia and Ukraine also again posed inflation in the international market. It also decreased many countries income including Ethiopia. These all aggravated the endemic economic crises and crippled the government reform work.
As to him, based on the reform, the Dollar-birr exchange rate was going up which was a tool for adjusting the anomalies witnessed in the macro economy. In fact many economists dis agree in such measure but as to Tewodros, it was correct.
He further said that, many banks showed a positive nod for the devaluation of the birr against the Dollar because it helps to stabilize the economy. NBE depreciated the value of birr. To make the effort successful, it took various measures. Because hampering the value of hard currency shy away and punish people not to bring hard currency here. Unnecessarily, restricting the Dollar value does not make sense harms exporters. Because when the value is restricted, they transfer the pain to farmers. This mean at the expense of farmers the nation unfairly earns hard currency. Selling the product worth of 50 or 80 birr with 20 birr to the government or shroud trader harms farmers.
THE ETHIOPIAN HERALD TUESDAY 29 NOVEMBER 2022
