Most nations of the world have embarked on, or are in the process of formulating, medium-term economic reform policies with important common objectives such as sustaining a high level of economic growth, providing sustainable employment opportunities, and devising mechanisms to defeat poverty. Such a bold move is of significantly useful in recording progress via further improving as well as attracting basic socio-economic benefits from the important changes taking place in the regional and international realm.
Yes, in the era of interminably dynamic world and ever-changing socio-economic trajectory, putting a range of social, economic and even political measure/reforms in place is decidedly anticipated. Hence, sound as well as timely steps taken when compounded with transparency in all practices ushers in the path of sustainable development. The newly declared macro-economic reform program in Ethiopia is strongly believed to be instrumental in helping the national economic growth accelerate in a sustainable manner, promoting entrepreneurship and encouraging innovation; thereby creating jobs the bulging the youth.
Ethiopia has become one of the fastest-growing economies in the world by achieving robust economic growth over the past six years. True, Ethiopia has become a significant player in the African economic landscape and has demonstrated its commitment to achieving the Sustainable Development Goals.
Since Ethiopia would like to have a competitive, market-based determination of the exchange rate and address a long-standing distortion within its economy, it has recently inserted a comprehensive macro-economic reform.
Besides, country’s foreign exchange reform is also just one part of a wider package of economic reforms that are going to be implemented and accelerated in the months to come.
To be sustainable, economic reforms—defined to incorporate structural reforms and supportive macro-economic stabilization—require broad public support and national as well as international allies. This is more likely to be forthcoming when the economy is growing, employment is being generated, and social welfare is improving. Economic reforms are of course difficult to sustain in the context of high cost of living, rising unemployment, strained social delivery systems, and unequal distributions of income and wealth.
According to Prime Minister Abiy Ahmed (PhD), following the political change in 2018, the government has been implementing numerous economic reforms. Over the past six years, this reform has aimed at addressing longstanding economic structural problems.
Unequivocally, economic reforms are often critical for sustaining high economic growth and employment, as well as for improving social sector indicators. Reform and growth do not have to be mutually exclusive. Since the uncertainty created by an unstable macro-economic environment would deter private sector investment, the country has to firmly focus on properly implementing the reform program and policy.
Through the implementation of this macro-economic reform program, Ethiopia would receive billions of dollars both directly and indirectly. The reform is also of paramount importance in fostering the homegrown economy, bolstering production and productivity as well as building government’s capacity. The macro-economic reform program targets at sustaining the economic growth, encouraging innovation and creating suitable trade at a competitive scale as well as helping homegrown economic activity keep its increasing momentum. Interestingly, apart from the loan secured from the International Monetary Fund (IMF) and other loan providers, the World Bank approved to release 1.5 Billion Dollars. Of this, one billion is a grant and the rest is concessional credit from the International Development Association (IDA). This is really an outcome of the viable reform the country has entertained.
Basically, the implementation of the macro-economic reform policy is believed to make high and stable economic growth a success and maintaining single-digit inflation. The macroeconomic reform, which is supported by the International Monetary Fund (IMF), the World Bank, is set to build a modern and internationally competitive economic system and deliver substantial benefits to the country’s economy.
The market-based foreign exchange rate regime is also critical to relieve the country’s foreign exchange shortages, align the prices of import and export goods and services with market realities and address the balance of payment deficit.
It is also critical to relieving foreign exchange shortages, removing constraints to private sector investment and growth, aligning the prices of imported and exported goods and services with market realities. This approach also addresses imbalances in the balance of payments and offers numerous additional benefits.
The macro-economic reform program has indeed targeted at establishing a modern and sound macro-economic policy framework that supports and ensures stability, resilience, and sustainability, transforming investment and trade environment to boost competitiveness through a favorable environment and opportunity that promotes and enhances innovation and entrepreneurship, expanding productive capacity and productivity growth by increasing investment and unlocking economic growth potentials, and improving public sector capability that enhances the government’s capacity to ensure quality and efficient service delivery.
Ethiopia’s economic reform agenda will lay the foundation for strong, private sector led, inclusive economic growth and job creation. High and stable economic growth and maintaining single-digit inflation are among the major goals to be achieved during the implementation period of the program. The reform measures aim to correct foreign exchange distortions, strengthen the financial sector, control inflation, increase tax revenue, improve the efficiency of government investment, ensure the sustainability of government debt, enhance the competitiveness and soundness of the banking sector, and improve the business and investment environment.
All relevant ministries and governmental institutions will provide the necessary monitoring and support. The government is committed to strong leadership in policy reform to maintain consistency in implementation across all relevant institutions.
On the other hand, the government is enhancing Institutional capacity by providing support to key macro-economic institutions such as the National Bank of Ethiopia, the Ministry of Finance, and the Ministry of Planning and Development. These institutions are crucial for formulating and implementing macro-economic policies, as well as for monitoring and evaluating their impact.
It has also been argued that macro-economic stabilization may benefit the poor, who are the most exposed to the adverse implications of inappropriate policies given their limited ability to protect themselves through asset and income diversification. In addition, unanticipated inflation is costly to those locked in nominal contracts, reducing in most cases real wages and favoring the owners of capital.
Indeed, Ethiopia with efficient spending on the social sectors, particularly health and education, have obtained high returns in terms of enhancing their human resource base, reducing poverty and infant mortality, and increasing life expectancy.
As countries following export-promoting strategies, which have thus been able to benefit from a shift in trade and production toward labor-intensive goods, have generally registered increases in real wages and more equitable income distribution, Ethiopia has shown keen interest to draw important lessons from these nations. Such strategies have been shown to enhance equality in the long run.
As learnt from a number of economic experts and senior officials despite reservations, the comprehensive macro-economic policy the country has commenced to pursue would be a viable means to garner supports from development partners, push the national economic growth steps forward and help create too many job opportunities at national level.
Here, expenditure composition can and should be improved to help the poor by promoting basic education, primary public health, and rural infrastructure and by reducing unproductive outlays. Monetary policy can play an important role in reducing the inflation tax, which has a greater impact on the poor. It can also improve the financial intermediation process.
As learnt from the statement from the Office of the Prime Minister, the government of Ethiopia has begun implementation of its comprehensive macro-economic reform policy with revision of the country’s foreign exchange system. Besides, this reform has attracted a range of national economic bounties.
The reform policy aims at correcting foreign exchange distortions and solving the structural balance of payment deficit, reduce inflation by modernizing the monetary policy frameworks. According to the office, the reform seeks to achieve national development aspirations by solving debt vulnerability and increasing domestic income, building a strong, inclusive, and sustainable economic system by improving government service delivery and business and investment environment.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD THURSDAY 1 AUGUST 2024
