Ethiopia: Concrete Changes Recorded in Macroeconomic Reform Amid Challenges

Ethiopia is implementing a comprehensive macroeconomic reform program with the goal of achieving sustainable economic growth and stability. This program includes measures to address foreign exchange distortions, balance of payments deficits, and inflation. Key elements include transitioning to a market-based exchange rate, modernizing monetary policy, and strengthening the financial sector.

The country’s comprehensive macroeconomic reforms, being implemented since July 2024, are demonstrating remarkable results in boosting the nation’s economic growth in a sustainable manner; ENA reported citing Ministry of Finance.

It has solidified its position as the largest economy in East Africa and the third-largest in Sub-Saharan Africa.

While explaining the performance of the last nine months of the 2024/25 fiscal year, Minister of Planning and Development, Fitsum Assefa (PhD) has stated that tangible changes have been recorded in five selected growth drivers in the macroeconomic reform.

In her explanation, a series of reforms have been carried out in accordance with the 10-year plan. While the first phase of the economic reform was completed, the second phase of homegrown economic reform has been prepared and implemented.

She explained that the reform implementation is aimed at ensuring macroeconomic stability; increasing the productivity and competitiveness of sectors; improving the investment and business environment; and increasing the capacity of the government to implement related legal frameworks.

As to her, tangible changes have been recorded in the work done on the five selected growth drivers. She noted the growth in harvest production in the agricultural sector and the effectiveness of summer wheat.

The increase in energy consumption in the industrial sector over the past nine months also indicates that production capacity is growing. She mentioned that steel and cement production is an important issue in the construction sector; this is an improvement compared to the previous year. Besides, improvements have been seen in the tourism and digital sectors.

The Minister also mentioned that the results of the macroeconomic reform are domestic savings and investment. The share of savings and investment in the country’s gross domestic product (GDP) was seen to be stagnant before the 2022/23 budget year. However, investment performance in 2023/24 was 20% of the GDP and current performance indicates it will be 23.2% in 2024/25. This is a change brought about by the homegrown economic reform.

The government revenue plays a crucial role in growth that a task force has been established to coordinate revenue-related reform efforts and has been meeting weekly to work on a number of policy reforms that will address tax policy, tax administration reforms, digitization, and in general, tax-related corruption.

She mentioned that the challenge associated with the federal structure was physical capacity; by improving this recently; they has been working on a common revenue system that has significantly improved the income of the regions.

She further explained that a large subsidy was provided in connection with the reform; 211 billion Birr of subsidies were provided in the past 9 months and that a total of more than 400 billion Birr of subsidies would be provided by the end of the year.

The minister said that another indicator of the health of the macroeconomic environment is the debt situation; the country was able to benefit from a large debt restructuring in cooperation with international institutions and countries to support the homegrown economic reform.

The opportunity to temporarily suspend debt payments of 1.4 billion Birr before the debt restructuring decision was made reduced the pressure and created a favorable environment for using the available funds for development. The reform came with a debt restructuring of 3.5 billion Dollars in total, she indicated.

She noted that in 2024/25, if this debt restructuring had not been achieved, the debt that would have been paid was USD 2.8 billion.

She stated that the reform work has made it possible to make all of the government development organizations profitable by making a general change in their operations. As a result, the total income of government development organizations has reached 1.5 trillion Birr.

In the past nine months, they have brought in USD 9.3 billion in foreign exchange; paid 98 billion Birr in taxes; and transferred 14.5 billion Birr in government profit to the Ministry of Finance.

The printing of securities, including passports, has been done domestically; the launch of the Ethiopian Securities Market; the establishment of the Ethio Green Company; and that the foreign exchange reform and related activities are in good condition; thus foreign exchange reserves have increased.

She pointed out that the changes seen in the mining, revenue and manufacturing sectors need to be continued in other sectors as well.

While approached by the Ethiopian Herald exclusively, Mekonnen Solomon, a Horticultural Export Coordinator at Ministry of Agriculture said that currently, the productive efficiency of public owned sector and enterprises are relatively feeble. The administrative and overhead cost is very high when compared to private sector. The innovate capacities of its structure and technological capabilities are relatively weak. Public owned enterprise needs to be privatized and private sector capacity should be strengthened for sustainable economic growth and economic stability.

On the other hand, the Ethiopian private sectors, who remain under government trade protection are neither efficient nor complement with the government’s effort to resolve social and economic problems. The service delivery is also weak. Thus, the current macro-economic reform is believed to bring a breakthrough to transform the economy and achieve growth for the time to come, he said.

Commenting on the effectiveness of the reform on foreign exchange rate administration Mekonnen said that the main problems that limited the flow of foreign direct investment were the regime of very low and relatively fixed exchange rate. Flexible exchange rate will offer the private sector to build confidence on existing market as the exchange rate is more flexible than ever. Flexible exchange rate creates a favorable condition for private entrepreneurs to operate their business in a competitive environment without felling loss in bargaining.

Adding, he said that the foreign exchange rate administrative reform allow actors in the private sector to secure adequate and sufficient foreign currency required to expand their market abroad; buy raw materials on relatively cheaper cost; and raising the productivity of their workers by moving their salary to optimum scale.