Ethiopia: The Macroeconomic Reform Has Tackled Financial Challenges

Agriculture is the mainstay of the nation economy which is the means of living for more than 85% of the population and yet it is subsistence, rain fade and vulnerable to extreme weather conditions.

Nevertheless, it accounts for 70 % of the nation’s foreign currency earning and contributes to about 45 percent of the Gross Domestic Product. The contribution of the Industry to the GDP though growing, similar to the service sector, it is negligible.

The dominance of agriculture in the economy has continued for the last seven decades since the planning of economic growth started and implementing it to attain growth by the imperial regime.

After successive decades, the population number rose to 130 + million which was 25 million in 1960s. The annual population growth which is three percent surpassed the economic growth which poses shortage of supply goods and services and inflation.

The nation’s economic integration with the outside world also grew from decades to decades. But its export items are not yet diversified as it is expected and most of them are agricultural products with no value addition in their raw forms. To realize economic growth the nation imports capital goods and industrial inputs. However, the prices of the imported goods kept on increasing year by year but the export products prices did not.

According to the Ministry of Finance recent report, the nation annually imports goods and services worth 20 billion Dollars. But its annual export earning is only 3 billion Dollars. This clearly shows the unhealthy status of the nation’s macro economy. To balance the deficit the government fills its coffer from remittance obtained from diaspora community which amounts to 6 billion Dollars. The rest is balanced by loan and grants secured from the international financial institutions and from bilateral agreements.

Due to the macroeconomy anomalies for many decades, Ethiopia suffered a great deal in terms of shortage of foreign currency, inflation, unemployment, trade deficit, illegal trade and economic stagnation. To tackle the generational long challenge, in the recent past, the government introduced new macro economy policy, which put in place the floating of currency exchange regime.

To evaluate the overall trend of the finance system and the economy at large, the National Bank of Ethiopia with the collaboration of stakeholders from the public, private sector and think tanks organized last Thursday conducted seminar entitled “Ethiopia Finance Forum”.

On the opening ceremony the Federal Democratic Republic Ethiopia President Taye Atskesilasie, said that, the comprehensive macroeconomic reform program that Ethiopia unveiled is designed to address structural challenges and propel the country towards sustainable economic transformation.

The forum was prepared aiming to align on the future of Ethiopia’s financial systems and promote collaboration and investment opportunities. As it is remembered, the government invited foreign banks to operate here either as self-standing or merging with the local banks. The scheme is expected to bolster the nation’s foreign currency reserve which is part of the reform program.

The organizing of the forum is believed to serve as a platform to policymakers, financial institutions, development partners, private sector stakeholders, financial sector experts as well as the international community and diaspora to discuss, share experiences and prospects for financial sector development.

The president stated that Ethiopia’s economic reform program targeting at promoting a more open, competitive and private-led growth model that attracts foreign direct investment.

The reform is being executed with meticulous planning, seamless coordination and proper sequencing and to that end a close partnership between pertinent ministries and the National Bank of Ethiopia was created.

Particular attention was given to ensure that appropriate mitigation measures were taken in the reform process.

He also noted that the success of the reform can also be measured by the amount of financial support it garnered from multilateral financial institutions addressing core issues such as shortage of hard currency, inflation, the gap between the formal and the parallel market in exchanging Birr against Dollar and other currencies, unemployment and illegal trade.

According to the president, the financial support provided by the International Monetary Fund (IMF) is the largest ever concessional funding in IMF’s history. The World Bank has also approved one of the largest loans in recent years, providing critical budget support to sustain the reform momentum. The reform also serves as tool to tackle some inflation challenges through providing subsidy to the disadvantageous sector and the poor.

The unprecedented financial commitment from the IMF, World Bank and other institution is a testimony to Ethiopia’s reform trajectory. The availability of abundant natural resources, huge labor force and enabling environment could boost foreign partner’s confidence to give green light for providing loan. Furthermore, the strategic location of Ethiopia in the horn of Africa near the Red Sea and Indian Ocean attracted partners to cooperate with the nation.

He underscored that the fact that the reform programs have shown encouraging results at an early stage, on the fiscal and revenue side, the reform is a blueprint, feasible and achievable. The emerging local financial institutions equipped with well-trained staff and the surge of digitization further brought opportunity for meeting the reform goals. Digitization facilitates transacting money with very less cost, enabled to mobilize financial resources from the remote communities who were unbanked in the past and open the door for diaspora to send money in the form of remittance with no instructional hindrance.

But as to him, the journey towards fully achieving the goals of the reform is arduous, requiring considerable efforts and discipline, and yet attainable.

The Governor of the National Bank of Ethiopia Mamo Mihretu on his part said that, the recent macroeconomic reforms in Ethiopia have absorbed significant international support while also achieving notable successes. The forum, hosted by the National Bank of Ethiopia, was aimed to align on the future of Ethiopia’s financial systems and promote collaboration and investment opportunities.

The forum is believed to serve as platform to financial sector experts as well as the international community and diaspora to discuss, share experiences and prospects for financial sector development.

In his presentation on the detailed background, implementations and achievements of the macroeconomic reforms underway in Ethiopia, the Governor said the reform is exceptionally well-coordinated, meticulously designed, executed and managed by involving all relevant stakeholders throughout the preparation process, which spanned over a year.