Ethiopia lately made big moves in its economic policy. The shift is widely hailed as a rewarding measure in many ways while some take it with cautions. The devaluation which is part of the ongoing economic liberalization and reform is already having some impacts on the market and the economy in general—the full force of the shift whether positive or negative will be felt down the road. Obviously, the government took the measure considering different factors yet unprecedented and unexpected things could be triggered that would have short and long-term impacts.
While conversations are ongoing and attention is high on the economic reform, some are advising the nation to prepare for any repercussions that come with the change of economic policy. As witnessed elsewhere in the world, dollarization has both pros and cons and its success or failure depends on the country’s regulatory capacity and resilience to cope with emerging threats that follow the devaluation.
Being proactive rather than reactive is a rewarding gesture to do. In an increasingly volatile global economy, the stakes are high and the pitfalls are too many. Let alone taking a big measure, markets are unstable due to international or local factors and the only way to avoid unprecedented damage mainly falls on one’s preparedness to prevent and react. It does not require a crystal ball to tell that a slight change let alone a big policy turnaround will have positive and downsides, the sole option which is safest is to remain vigilant and to act quickly and decisively.
So far, the country’s development partners have welcomed the country’s move to a market-based foreign exchange rate. After years of negotiation, the International Monetary Fund (IMF) Board has resumed loan issuance to Ethiopia, approving 3.4 billion USD in the wake of the country’s macroeconomic policy reform. According to IMF report, the loan will address macroeconomic imbalances, restore external debt sustainability, and lay the foundations for higher, inclusive, and private sector-led growth.
Following the country’s measure, global financial institutions are approving credits and loans to the government. The World Bank and IMF have already allowed Ethiopia access to billions of dollars in loans and aid. The World Bank said on Tuesday its board has approved 1.5 billion USD in finance for Ethiopia as the country is striving for debt restructuring.
The World Bank said in a statement that it will provide a grant of 1 billion USD and an additional 500 million USD in a low-interest credit line to Ethiopia. The country also secured 3.4 billion USD support from the International Monetary Fund (IMF) last Monday, which would enable the country to restructure its debt.
In spite of the blessings that come with the devaluation, the move could bring ramifications.
Inflation and cost of living, according to experts, will see some shake-ups that could be positive or negative though. To address such scenarios, the government will increase its tax revenues and the salaries of employees. Moreover, the support of the international community is required in a time of economic transition. The international community should provide the country with the necessary finance, expertise, and other assistance to avoid any possible threats.
More accountability is needed from international lenders than just giving developing nations loans. Ethiopia is one of many nations that struggle with credit payment regulations and restructuring. The foreign exchange policies of these multinational creditors also affect international trade. For inclusive and sustainable development to be supported, the international financial system must be changed.
In sum, to accomplish the objectives of the breakthrough move, all relevant stakeholders both public and private must implement policies and strategies over the long term and with consistency.
THE ETHIOPIAN HERALD FRIDAY 2 AUGUST 2024
