Ethiopia: Macroeconomic fundamentals need rigorous attention

A healthy economy can not be achieved without increasing production, creating jobs, stabilizing prices, balancing Mesfin Namarra ([email protected]), former member of parliament and the NBE

Despite investments government, Ethiopian macroeconomics has deteriorated more and more over the years. There are currency shortages, double-digit inflation rates, unsustainable debt levels and mbadive trade deficits.

At this point, desirable factors – increased production, more abundant employment, price stability, balanced budget equilibrium for a healthy economy – seem to be more distant dreams. But there is no need to lose hope if political will exists and if proactive regulations and institutional capacities are strengthened.

The increase in production is the basis of any growth and any development. By putting in place well-articulated policy measures, agricultural, industrial and service output is expected to increase steadily at a rate higher than that of population growth.

The growth rate of double-digit gross domestic product (GDP) is contradicted by international financial standards. Institutions such as the World Bank and the International Monetary Fund (IMF), which seem less likely to be confronted with crippling macroeconomic malaise, can be realized. But this can only happen if the will to make the bureaucracy, as well as institutions such as the National Bank of Ethiopia (NBE), is autonomous. Otherwise, what we have is a government without control for its mismanagement of the economy.

The increase in production has a direct link with employment. This is a problem that really taints the current love between the government and the youth. Too many small and medium enterprises (SMEs) have failed. Doing business is also complicated by bureaucracy, poor enforcement of contracts and lack of access to credit. And operating companies are struggling to grow in the current macroeconomic crisis.

One of those bottlenecks that hinders private sector growth is price instability. The situation in Ethiopia is now similar to that of East Germany in the late 1980s. Moderate inflation of up to five percent per year is considered detrimental to growth. Ethiopia has recorded an average inflation rate of 13 pc during the past fiscal year.

Inflation can only be controlled by a steady rise in the production of goods and services at a rate greater than that of population growth. Currently, we are facing a rate similar to galloping inflation. This is not entirely attributable to the low production of goods and services. This is due to the uneven distribution of resources in the nation that has left too few hands.

High inflation is also related to deficit financing by the central bank. This has to do with the lack of a balanced budget. Of course, there is nothing "balanced" technically. When government revenue is below its expenditure, there is a budget deficit. When the opposite happens, it's a budget surplus.

A budget deficit is not a disease in itself; That's the way governments fund them that could be inflationary. If a government continues to finance its deficits through unlimited borrowing from the NBE, which is equivalent to printing money, it faces what we are today. The perception of an autonomous central bank has long been eroded since the governor of the central bank until recently, Teklewolde Atnafu, is also a member of the Executive Committee of the ruling coalition.

The central bank must be an agency capable of verifying government expenditures. Otherwise, there is no accounting for expenses incurred during an election period. The NBE should make the long-term health of the economy its top priority and work towards improving the foreign exchange and employment reserve, as well as reducing the economy. # 39; inflation.

Effective policy and sound institutional capacity should lead to a healthy balance of payments. The difference between merchandise exports and imports represents the trade balance while the current and capital accounts show the overall balance of payments situation.

In Ethiopia, we currently have a trade deficit of about $ 13 billion. merchandise stagnated below $ 3 billion. The foreign currency generated by the export of services, remittances and foreign aid helps to catch up with our import bills. But they could not be sustainable ways to tackle the deficit.

All these macroeconomic variables are closely related. The increase in production can send a positive shock wave through more complete employment, relatively stable prices, an almost balanced budget and a sound balance of payments. But productivity will not increase unless the government includes the private sector and provides the regulation and institutions needed to support better production.