29 May 2018

Ethiopia: Enduring Way Out to Forex Crunch

Ethiopia's GDP had been recorded to be in the double digits, uninterrupted for close to 15 years until now, and unseen in the nation's economic history. Likewise, those international financial juggernauts had not been reluctant to speak about it either; whatsoever the case, we are hearing same chorus of robust economic growth thriving amid various challenges.

Ethiopia's economy has been expanding for over a decade. Real GDP grew by double digit folds since 2008, reaching 827.6 billion Birr in last fiscal year. Recently, IMF had strengthened the forecast that Ethiopia's economy would continue its progress, showing a bit regression from the earlier double digit.

Whatsoever, this rate of growth may be still cogent reason for Ethiopia and Ethiopians to be ecstatic, particularly, if they could compare it with various other countries below Sahara that have been fettered by bleak economic outlook below three percent for decades. Accordingly, Ethiopia will work miracles to emancipate its__ people from rock bottom poverty in the near future, provided it could manage to sustain the current development close to 10 percent, let alone the previous.

Earlier IMF had forecast Ethiopia's growth to be below six percent. However, now, it has come around to concede that growth is to be over eight percent. This amount by itself is great and it evidenced the economic growth of the country is likely to be sustainable; it can grow further as we can see from the various projections of the international finance institutions.

The achievements of Ethiopia seem uncanny, as witnessed by those institutions, though characterized by high unemployment rate, massive external debt, widening trade deficit and lack of access to finance, coupled with severe forex crunch. Particularly, now Ethiopia is hard hit by shortage of hard currency and double-digit inflation (nonetheless, reports of World Bank and the IMF forecast positive growth prospect). The challenge is keeping on emerging harming economy hitting back the ongoing development recorded so far.

To heal the crack, on a meeting last month with the business community, Prime Minister Abiy Ahmed (PhD) discussed that the country's foreign currency shortage will last for many years. He underlined that there is no immediate solution to the Forex Crunch in the country. But some scholar and business men forwarded some possible solutions.

According to the International Monetary Fund (IMF), Ethiopia's foreign reserves at the end of the 2016/17 fiscal year stood at 3.2 billion USD which is less than what it spends on imports in two months.

As an immediate solution for this, the premier called on local businessmen to repatriate hard currency which they have stashed in accounts in Dubai and China. Partly accepting the premier's statement, Hibret Insurance Board Chairperson Eyesuswork Zafu says the remedy for such forex shortage is not only in the hands of domestic investors, but also in the hands of the bank governors, the economic policymakers and the leadership.

He also says, "Before the premier made such statement to us, he should have consulted the issue with the heads of National Bank and Minister of the Finance and Economic Cooperation."

Moreover, the chambers in respective state should have been allowed to discuss the forex shortage and its impacts on the services, manufacturing, agroindustries, he adds.

For Eyesuswork, lasting solution to forex crunch is to put in place sound reserve management practices that go along with the country's macroeconomic management.

Besides, abolishing unsound economic policies (fiscal, monetary and exchange rate, and financial) is a must to strengthen the ability to manage reserves, he says.

Likewise, he advises the domestic investors to be part of the solution than the problem in strictly observing the country's monetary regulations and rules.

Bahir Dar University School of Law Asst. Prof. Gashaw Beza asserts that the current hard currency shortage is widening the trade imbalance between nation's import and export earnings, on the top causing price hikes in services or goods.

He, therefore, says the leadership needs to work hard on avoiding foreign exchange mismanagement by government agencies and implementing corruption-free mega projects._He also noted that domestic manufactures need to be supported in bringing about export- led growth apart from encouraging the public and private institutions to purchase their produced items. By doing so, the nation would enable to save good enough hard currency that has been spending on imports.

Gashaw points out that as a given nation's economic growth depends on the extent of its financial resource mobilization of both local and foreign currencies, it is hardly possible to bring economic growth without being good at such move.

Also, he underlines that to overcome the dearth, working monetary directives and guidelines need to be put in place. The corruption and money laundering activities in various sectors have to be stamped out as well. National Bank and other financial institutions need to come up with right way of mechanisms for lasting solutions, he says.

As to him, the black market is also the other challenge in the efforts of addressing the crunch. "The government needs to toughen its mechanisms to control such market."

Both say there should be operational platform as think thank forum that could generate sound approaches that would assist to deal with the crunch from many perspectives.

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