Ethiopia: Containing Inflation Requires Thorough Economic Intervention

The birr is the unit of currency in Ethiopia.

Redressing the double digit inflation rate needs to receive due attention as it continues to impact the entire economy, said Alemayehu Geda, who is a professor of economics at AAU.

In an exclusive interview with The Ethiopian Herald, Prof. Alemayehu said that there is an increase in inflation rate in the past months.

For the last three months, the government had been devaluating the money for several reasons and there was an excess supply of money in the market, he added saying some ten years ago the supply of money was 67 billion Birr. Now, it has increased into 970 billion. According to him, this has directly impacted the economy negatively. "The government is printing the money for several expenses. Over ambitious plans of the government and the capital at hand cannot be matched. Whenever the government faces financial constraints it borrows money from National Bank. That means, it is printing excessive money indirectly. Therefore, addressing this issue is the first and the most important thing."

Prof. Alemayehu also said that there is unbalanced population growth and food item supply. The population is increasing at an average 2.9 percent and agricultural productivity is less than that. This is especially true for the past five years where the population increase and agricultural production are unparalleled. The greed nature of merchants has also greatly contributed its share in the inflation and soaring market price. "Our businessmen are working to make unreasonable profit. This is the harshest side of our market system. In modern society earning ten percent from a given product is something reasonable. If it is 20 percent it is something great. When it comes into Ethiopia, our merchants are working to get more than 100 percent profit which is abnormal and unreasonable."

There are more than 250,000 businessmen in Addis Ababa alone. Monitoring this merchants and put a price ceiling is difficult. In this regard, there should be a regulated price on basic food items and distribute them in Producers Associations. This will serve as a short term solution to stabilize the market. Alemayehu said, the impact of devaluation is invisible. Its impact will show its harshest face within three or more month. According to him, some of government's innervations are good in stabilizing the market. For instance, distribution of breads in different stores have key role in helping economically poor members of the society. According to him, distributing bread is not enough. Providing basic consumption items in Cooperative Unions will also have a positive impact in stabilizing the market.

The government has to work aggressively to build market places that provide basic consumption items and compete with private retailers. This will create an opportunity for consumers to have an access to market goods with fair and reasonable price and it will also force greedy businessmen to lower their market price. As part of its economic reform the government has unexpectedly introduced a new currency note last Monday. As it was indicated by Prime Minister Abiy, the change of the currency will play key role in recovering the national economy and control large amount of money that circulate outside banks.

More From: Ethiopian Herald

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