The Ethiopian government has implemented various measures to address the macroeconomic imbalances and challenges faced by the country’s economy. However, the outcomes of these measures have fallen short of expectations. The global economic crisis, as well as domestic conflicts, has posed additional obstacles to achieving the desired targets.
Tewodros Mekonnen, an economist with experience in international organizations, highlighted some of the measures taken and their impact on the economy.
Four years ago, the government introduced a home-grown economic reform program with the objective of addressing long-standing economic anomalies. The reform program aimed to tackle structural and multidimensional challenges that have hindered the country’s economic growth.
Over the past half century, the successive governments of Ethiopia have played a significant role in various economic activities, and the trend has continued to date. The allocation of public funds to infrastructure projects, such as roads, health centers, and schools, has been vital for economic growth. However, there have been concerns about the misuse and wastage of funds in some of these projects, highlighting the need for stronger institutions and a viable legal system to hold those responsible and accountable.
The dominance of the Commercial Bank of Ethiopia in the financial sector has resulted in approximately 60% of deposited money being provided as loans to the public sector. This has limited the availability of financial resources for the private sector, hampering its ability to contribute fully to the economy.
The burgeoning infrastructure, such as roads, health centers, schools, and others, is vital for the economic growth attributed to the government fund. The public money is allocated to Ethiopian Electric Power, rail transport, sugar projects, Ethio-telecom, and others.
In order to save the wealth from corruption and recklessness that hampers economic activity, needs to take strong action. The disbursement of huge amount of money to the government projects partially contributed to have low chance of private sector to obtain financial resources.
As to Tewodros, when he was working at the Commercial Bank of Ethiopia 15 years ago, he recalls that banks used to borrow money from each other. There was no shortage of hard currency. Later, the government began to implement megaprojects that needed a huge amount of hard currency and lately posed a shortage of hard currency, though there are now efforts to restore the loose and rejuvenate a healthy financial system.
To fill the gap between demands and supply of hard currency, the government introduced some solutions in the home grown economic reform program. The efforts that has been undergoing to introduce capital market can be seen as a part of it.
The borrowing of money by the government from the local banks brought repercussion by aggravating inflation and to reverse the situation, the home grown economic reform stipulates 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 Treasury bill so that can play its own role in bringing remedy to the government budget deficit. Banks have begun to compete for purchasing government store document by paying huge amount of money. Because of this, the National Bank of Ethiopia resorted to obtain money from the government treasury bills and store documents selling instead of printing paper money which aggravates the inflation. In the last years, the government could obtain 200 billion Birr from the selling of Treasury bill.
However, right after the introduction of the home grown economic reform program, things went in disarray. Within a year, COVOD-19 broke out and the implementation of the reform was disrupted and government again began to borrow money from local banks. It is obvious that money which comes from abroad will be dwindled due to various reasons and the government took the past practices as remedial actions. This again hindered some activities carried out by the reform plan.
The outbreak of COVID-19 directly affected money channeled here from foreign sources. When countries are hit by COVID-19, Ethiopian Diaspora reduced sending currency here to their relatives in the form of remittance. The reduction was 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 % of hard currency income. This incurred heavy damage on the nation’s income which in turn put drawback on the reform.
As to Tewodros, had the economic reform program been went as planned, overcoming the crises would have been possible. For instance, had the sugar projects been completed, exporting sugar and earning hard currency would have been realized. Repaying the debt spent for the construction of the sugar factories would have been accomplished. Had electric power dams been completed in time, earning hard currency through exporting energy would have been surpassed that the nation currently earns.
Industry Parks also would have been flourished by manufacturers and boosting export would have been possible. Due to the absence of proper follow up and evaluation projects were plundered and delayed. Not only projects are delayed but also their accomplishment quality was also compromised. When this happen the projects would never realize what was planned. Industries fail to produce better quality products and hard currency earned from export became frozen. The malpractices that have been rampant on project accomplishment were criticized by the economists but the concerned body did not respond to their appeal.
The homegrown economic reform put the mechanism in place to tackle the chronic problems in project accomplishment, and among the major reasons not to start new projects without finishing the existing ones can be cited here. Studying the problems that delayed the GERD and forwarding solutions by the government was exemplary. Great efforts were exerted to resume the GERD project.
In addition to the outbreak of COVID-19, the war ignited in the northern part of the country further aggravated the anomalies created on the economy. The war critically crippled the hard currency that had been drawn from foreign sources in the form of loans and aid. While the nation was struggling to heal the ailing economy, the war broke out in the country’s northern part and hit the nation’s debt repayment balance critically.
As to Tewodros, based on the reform, the dollar-birr exchange rate was going up, which was a tool for adjusting the anomalies rampant in the macroeconomic environment. In fact, many economists disagree with such measures, but as for Tewodros, it was good.
He further said that many banks gave a positive nod to the devaluation of the birr against the dollar because it helps stabilize the economy. Restricting the value of hard currency discouraged the Diaspora community and foreigners from bringing hard currency here. Irrationally, restricting the dollar value does not make sense. It does not motivate both importers and exporters.
In conclusion, while the Ethiopian government has implemented measures to address macroeconomic imbalances, various challenges, including the global economic crisis, domestic conflicts, and the COVID-19 pandemic, have hindered the full realization of the desired outcomes. It was learned that continued efforts, stronger institutions, and effective implementation of reforms are crucial for sustainable economic growth and stability in the country.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD SUNDAY EDITION 5 MAY 2024
