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Ethiopia Introduces New Economic Reform to Rectify Macroeconomic Imbalance

By Staff Reporter

Eyob-TekalegnAugust 30, 2019 (Ezega.com) -- The Ethiopian government has introduced a home-grown economic reform as part of a solution to rectify the macroeconomic imbalance the nation has faced for some time.

Officials from the Ministry of finance and cooperation have disclosed that the country has faced critical macro-economic imbalance which is being exhibited through record high debt burden, critical shortage of foreign currency and rising inflation.

The ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) claimed that the Ethiopian economy has been growing by double digits annually for about a decade now, a figure that has been doubted by independent scholars. Nevertheless, the government in Addis Ababa has been lauded for growing the country's GDP by around 10 per cent per year for the last decade.

In 2018, Ethiopia recorded a government debt equivalent to 60 percent of the country's Gross Domestic Product (GDP). Government Debt to GDP in Ethiopia averaged 34.57 percent from 1991 until 2018 but reached an all-time high of 60 percent in 2018 from a record low of 24.70 percent in 1997.

Briefing about the new economic reform which the government intends to execute over the coming three years, state Minister of finance Eyob Tekalegn said the government’s inability to execute grand projects as per their schedule coupled with poor capacity of repaying foreign debt has led the nation to face critical macro-economic imbalances.

Ethiopia’s economy has been driven state investment and the government solely owns local and foreign financial sources. The foreign debt has hit a record high as the nation’s capacity to repay its debt is highly compromised due to poor performance of the export sector, Eyob said

According to the state minister, the economic model the nation pursued over the past two decades has contributed to better infrastructural development and poverty reduction, but it paralyzed the private sector

The State Minister further said the economic reform rests mainly on three pillars, namely macroeconomic, structural and sectoral reforms of the economy.

He stated that stabilizing financial system, strengthening public financial sectors, focusing on key and potential sectors such as agriculture, manufacturing, and mining is very important to ensure viable economic growth.

The State Minister pointed out that productivity of small-holder farmers will be enhanced through provision of modern inputs and prioritizing strong small-scale manufacturing such as agroprocessing and leather products.

Among the challenges that necessitated the economic reform, he noted the need to triple per capita income to reach low-middle income level, reducing poverty level by half, curbing the rapidly increasing external debt, expansionary fiscal policy crowding out private sector, and galloping inflation rate that now stands at 15 percent.

Yinager Dessie, Governor of the National Bank of Ethiopia, said the government will withdraw its involvement from grand projects gradually, allowing the private sector to take over.

He said banks will be providing loans and advanced foreign currency services to the private sector while integrated strategy will be implemented to address foreign currency shortages. According to the officials, improving saving from the diaspora, exploiting the tourism sector and supporting Foreign Direct Investment (FDI) are part of the reform to address the structural economic imbalance in the country.

The reform also will focus on improving the agriculture sector, ranging from improving small scale farming to changing land use right where individual farmers will be involved in commercial farming and giving artisans incentives and curbing illegal trade channels. According to the government, modernizing the ICT sector and building digital economy are also part of the reform to speed up economic development and create job opportunities in the country.

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