Praising the commendable outcomes of government’s one-year economic reforms in adjusting the macroeconomic imbalance, generating substantial foreign currency, lessening external debt and promoting private sector involvement, economic experts say that more interventions need to be introduced to sustain the economic growth.
Ethiopia’s fifteen-year double digit economic growth is widely attributed to its positive impact on poverty reduction, social and human development as well as life expectancy and provision of utilities. The economic growth, however, was primarily driven by enormous public expenditures propelled by external borrowing that has accumulated a debt of 27 billion USD. Speaking to The Ethiopian Herald,
Senior Macroeconomic Advisor to the Prime Minister Mamo Mihretu says that Ethiopia’s current debt sustainability is rated as high and the country would not be able to access external loan on commercial basis, left the nation to the risky concessional loans.
The expert notes that addressing debt distress and debt vulnerability are critical government agenda and the incumbent is looking at border macroeconomic issues to overcome the problem and it is taking steps to start fiscal consolidation measures.
“The government is currently
focusing on completing the existing public investment projects rather than starting new ones to sustain the economic growth,” he says, adding that significant activities are also being carried out to expand the role and participation of the private sector in economy.
The incumbent has been working in partnership with the private sector to finance development projects and the ongoing economic transition primarily focuses on increasing the availability of finance through different innovate means including better attraction of private investment in mega projects.
Also, an Investment Climate Reform Program, chaired by Prime Minister Dr. Abiy Ahmed embarked on to address policy, regulatory and administrative barriers that inhibit the growth and performance of the private sector, the Advisor adds.
Mamo claims that the economic recovery measures of the past year are instrumental to the situation where the country is currently enjoying in a sustained economic growth with increased flow of foreign currency. The government has also done remarkable work in terms of accelerating tax mobilization and decided to focus more on completing the existing projects and regulating public expenditures thereby reducing external borrowing and lessening debt-GDP ratio.
According to him, successful activities are being carried out in mobilizing external resources from development partners and international institutions and the World Bank Group, for instance, financed the government in tune of 1.7 billion USD through budgetary support. Tax revenue has also been showing remarkable progress due to government’s meticulous efforts to enhance tax collection capacity and widen the tax base.
Sharing the above, Economics Associate Professor at Dilla University, Dr. Dawit Hayeso says that the economic reform measures have been brought about far-reaching outcomes; mentioning the 30 percent increase in the performance of service export sector in 2018.
The government has done commendable activities to address the private sectors’ complain about access to credit and it is taking measures to meaningfully increase the finance that is available to private investment. During the past one year alone, the availability of credit to private sector was increased by 63 percent.
According to Dr. Dawit, the government has also been considerably increased the inflow of foreign currency and during the past 11 months, the total forex inflow to Ethiopia is close to 19 billion USD thereby remarkably boosting forex reserves at the National Bank.
“If we compared the figure with last year, this is a dramatic increase in forex inflow that is coming from investment, international support, remittance and export of goods and services.”
Despite the aforementioned successes, both scholars stress that Ethiopia’s economy is still challenged by huge unemployment, massive foreign debt and forex crunch as well as unsatisfactory export performance.
To overcome the challenges, Dr. Dawit suggests that the government should maintain labor-intensive development approach as priority and helps the private sector to take the lead in job creation through availing access to loans and enabling business climate. Prime attention had better given to encourage businesses that would generate productive jobs for urban educated youth.
“60 percent of Ethiopia’s GDP is a public debt and minimizing public expenditure, diversifying portion of the loan to build industry development and ensuring the private sector’s access to loan are crucial steps to reduce Ethiopia’s reliance on external borrowing and reducing the pace of loan queries.”
He states that encouraging the involvement of international companies in Ethiopia’s wider investment opportunities and improving the export sector’s low performance are tools to boost forex reserves and easing the access to hard currency. Utmost priority should also be given to advance Ethiopia’s capacity to substitute the bulging imports of consumer goods that have been drained precious forex reserves in a view to allocating the hard currency to strategic imports.
By doing all these, the economic reform program and its implementation will achieve the goal of ensuring non-inflationary growth and fair distribution of income, creating more and better jobs, regulating balance of payments and thriving private sector’s contribution thereby sustaining the current economic growth, the expert remarks.
The Ethiopian Herald July 23, 2019
BY BILAL DERSO
