23 March 2008
Addis Ababa — The lift of some taxes on grains is unlikely to have an immediate impact on rising food prices in rural areas but may ease the burden on the urban poor in several months' time, if the government follows through on its implementation, an Ethiopian economist told a UN news agency on Thursday.
"The fact that 85 percent of Ethiopians are living in rural areas means a reduction of value added tax and turnover tax will not have an impact on their lives," the Inter Regional Information Network (IRIN) quoted the Ethiopian economist, who it said declined to be named.
"The reduction will probably help the urban poor; [but] the change will not be that significant," the economist told IRIN in the capital, Addis Ababa.
"It will take at least six months to see some changes in the grain market - with serious regulation and follow-up. However, the government does not have the capacity to do that." Speaking in parliament last week, Prime Minister Meles Zenawi said: "While our current economic development is encouraging, worsening inflation has created a difficult situation for the low-income urban dwellers." The government, he added, had devised temporary measures, including provision of direct and indirect subsidies, and had spent 372 million birr [US$38 million] in the past few years to subsidise wheat and 3.52bn birr [$366 million] to subsidise fuel.
"Direct subsidies have included government expenditure to stabilise fuel prices and provide wheat for low-income populations," Meles said.
A subsidized wheat supply of 25kg every month for low-income urban dwellers was introduced in March 2007.
"The current distribution of wheat will be maintained and edible oil will also be offered in a similar manner until the price of goods has been satisfactorily stabilized," Meles said in hi update on economic issues.
"We will also attempt to distribute products such as soap if deemed appropriate, depending on the circumstances," he added.
Market-related factors, along with chronic problems and decreased production, were expected to render an estimated eight million Ethiopians food-insecure this year, while 2.4 million acutely food-insecure people would require food and cash assistance, the report indicated.
"Despite some increases in income, high prices are affecting the food security of the rural and urban poor, who rely heavily on the market to purchase food, according to a UN humanitarian report.
According to the UN, 16 percent of Ethiopia's more than 70 million people live in urban areas and the rest in rural areas. Eighty-five percent of the population is employed in agriculture.
"Overall, the increase in prices of cereals is expected to have a serious negative impact on the food security of the poor, both in urban and rural areas, who depend on the market to purchase food, though increases in wage labor are expected to enable them to cope, to some extent, with increasing prices."
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