The inflation rate in Ethiopia has hit double digit in the year 2018/19. To address the spurt in inflation, the government has identified the causes and set plans to balance the inflation rate.
Balancing the demand and supply of goods, and the monetary and fiscal policy, modernizing the trade system, stopping businessmen that cause (artificial) price hike are the areas the government zoomed upon to work on to control the inflation.
Regarding the aforementioned target areas, The Ethiopian Herald has approached economists to get their reflection.
Wondaferaw Mulugeta (PhD), Associate Professor of Economies, Faculty of Policy and Development Studies at Federal Meles Zenawi Leadership Academy, said that the government’s focus on maximizing productive sectors while minimizing expenditure on wasteful products is the right action. This is not only important in increasing tax collection, but it is also essential to narrow the fiscal gap down.
As deficient is regarded as the cause for higher inflation rate, minimizing government’s expenditure as well as tax exemption in areas that are not profitable is fundamental.
Appreciating the government’s commitment to involve Ethiopians at birth in the private sector is a great deal, he noted that the competition among the banking sector will enable citizens to have alternative financial tool. “The financial sector is the backbone to facilitate the trade system.”
Though modernizing trade system could be applied in many ways, he stressed that prioritization should be given for areas that should come first.
Wondaferaw further stated that in order to modernize the trade system of the nation; it is a must to embrace all the retailer shops in the tax bracket. On the other hand, considering the fact that an appropriate trade system is one way of arresting inflation, the government should manage the small retailer shops under one roof.
Moreover, he continued, the government should further strengthen effort to penalize those business people trying to amass greater profits by adding extra prices on products. In this regard, the firm action that the Addis Ababa City Administration took on self-centered traders is crucial, Wondaferaw added.
As to him, Ethiopia should also look into the agriculture sector to control its growing inflation rate. He said, “If it is needed to lower the rate of inflation instantly, the agricultural sector should be given priority. The nation has to take lesson from countries like India. Most of our oil seeds are exported while we are importing edible oil that is costly.”
The government, in this regard should work on inward policy. The nation has to strive to set up oil manufacturing companies for domestic market while vigorously working on exporting.
Echoing the same sentiment, Shiferaw Shitahun, an Economist, says that focusing on conservation of natural resource that is based on agriculture is vital. This is crucial as it fights the inflation rate caused by price expectation, according to him.
“Having a modern and timely agricultural policy helps the nation to increase its product and productivity by allowing farmers not to care much about price expectation. In this regard, revising the agriculture policy is advisable,” Shiferaw remarked.
Further, arguing against the government’s decision to move from “aggregate demand” to “aggregate supply”, Shiferaw concluded that balancing aggregate demand with aggregate supply is important to settle the inflation rate in the country.
The Ethiopian Herald August 7/2019
BY BETELHEM BEDLU
