Addis Abeba — Prime Minister Abiy Ahmed touted the success of the macroeconomic reforms introduced in late July by his administration during a parliamentary session on 31 October, 2024. He hailed the reforms as a pivotal step toward enhancing government revenue, fortifying foreign currency reserves, and revitalizing the financial sector.
"We are at the beginning of a new chapter in which we will initiate national development by completing the reforms that were underway across various sectors," Prime Minister Abiy told Members of Parliament (MPs).
He emphasized that Ethiopia's economic system has been excessively closed, limiting the country's ability to benefit from external trade, diversify products, and attract the necessary direct foreign investment. "In this context, the recent macroeconomic reforms lay the foundation for an era of sustainable economic growth for Ethiopia."
According to the Prime Minister, Ethiopia recorded an 8.1% growth rate in the last fiscal year, which he described as a "significant achievement on a global scale."
His administration also anticipates an 8.4% growth rate in the current fiscal year, with the agricultural sector expected to grow by 6.1% and yield 1.4 billion quintals from the cultivation of 30 million hectares of land.
Furthermore, the government projects that the industrial sector will grow by 12.8% in the current fiscal year. Additionally, it anticipates that 72 new large-scale projects in various industries, such as textiles, food, and construction, will commence operations and contribute to the market.
The Prime Minister noted that the economic performance observed in the first quarter suggests the potential for higher growth than initially planned for the current fiscal year.
As evidence, he highlighted a significant increase in government revenue following the macroeconomic reforms, indicating that revenue reached 180 billion birr in the first quarter of the current fiscal year--higher than the 109 billion birr collected during the same period last year.
However, the Prime Minister pointed out that the tax-to-GDP ratio remains below 10%, stating that the plan is to increase the ratio to 8.5% this year.
Furthermore, the Prime Minister noted achievements in the export sector, revealing that export earnings stood at $1.5 billion in the past three months, an increase of $1 billion compared to the same period last year. He underscored his administration's expectation that export revenue will exceed $5 billion by the end of the fiscal year.
We are at the beginning of a new chapter." Prime Minister Abiy Ahmed
Introduced on 28 July, 2024, the new macroeconomic reforms aim to rectify long-standing distortions in Ethiopia's economy by shifting from a crawling peg exchange rate system to a market-based foreign currency regime.
Subsequent to the implementation of these comprehensive reforms, Addis Abeba, the nation's capital, has experienced a notable surge in prices for various consumer goods. This price increase has led to government intervention, including crackdowns on businesses suspected of engaging in price gouging and hoarding.
A recent survey conducted by Addis Standard across multiple markets in Addis Abeba revealed significant price increases for a range of products, particularly imported goods and essential domestic items such as oil, sugar, and onions.
A trader at Merkato, the city's primary market, who requested anonymity, reported that the price of a five-liter container of cooking oil has increased from 900 birr to 1,200 birr. Similarly, the price of sugar has risen from 100 birr per kilogram to 116 birr.
Recently, the government also implemented a significant overnight increase in retail fuel prices, further burdening consumers.
Effective 08 October, 2024, the price of gasoline rose to 91 birr per liter, while diesel prices surged to 90 birr per liter.
As reported by Addis Standard, consumers and experts have expressed concerns about the potential ripple effects of the recent fuel price increase on other commodities, which could further exacerbate the already challenging cost of living.
Despite these developments, official figures indicate a decline in headline inflation from 28% to 17.2% last month.
Acknowledging the impact of implemented measures in reducing the inflation rate, Etaferaw Motta, an MP, remarked that low- and fixed-income earners continue to face challenges due to the high cost of living.
Etaferaw also inquired about the specific macroeconomic measures the government intends to implement to achieve a single-digit inflation rate next year.
Responding to concerns about the rising cost of living, Prime Minister Abiy emphasized that the government is implementing various programs to support the most vulnerable members of society.
He noted that, to prevent the high cost of living from placing excessive pressure on citizens, the government has allocated a subsidy budget ranging from 300 to 400 billion birr.
"The government's initiatives, including soup kitchens, school feeding programs, and Sunday markets, are part of its efforts to support vulnerable populations," the Prime Minister explained. "On a national level, housing has been provided for 249,000 vulnerable citizens."
To permanently lower the cost of living, however, the Prime Minister highlighted the necessity of producing goods and services more efficiently.
"Reforming the trade system also holds significant benefits," he added.
According to the Prime Minister, the recent macroeconomic reforms have significantly contributed to rectifying the country's distorted balance of payments and addressing the foreign currency scarcity that has been observed in Ethiopia.
He cited the increase in foreign currency reserves as evidence of this progress, indicating that the National Bank of Ethiopia's reserves have surged by 160% over the past three months, while the reserves of private banks have increased by 29%.
Furthermore, Premier noted that commercial banks purchased approximately $652 million and sold nearly $1 billion in the first quarter.
"This performance is not to be underestimated," Abiy told legislators.
Despite this, the Commercial Bank of Ethiopia (CBE) recently announced that less than one-third of the $282 million in foreign currency allocated to importers since the introduction of new macroeconomic reforms has been utilized.
The CBE stated that it has allocated a total of $284 million to its customers from 29 July to 10 October, 2024, across four rounds.
Of this amount, $208 million was approved for importing raw materials and consumer goods, such as food and medicine; $42 million for machinery purchases; and $18 million for spare parts.
However, the state-owned bank reported that the utilization of these allocated funds has been slow, with only 28% of the foreign currency being used by customers.
The Prime Minister informed lawmakers about some "unintended" consequences of the macroeconomic reforms related to the Franco Valuta, indicating that adjustments to the policy would be made soon.
He explained that the decision to permit imports through Franco Valuta was motivated by two primary reasons.
[The repayment of $13 billion in debt] is part of our efforts to leave a sustainable legacy for future generations rather than passing on debt." Prime Minister Abiy Ahmed
"First, to provide an opportunity for foreign currency that had previously left the country to return," he explained. "Second, the decision allowed imports to continue, even with the potential challenges of increasing prices and putting strain on commercial banks, which are still gaining experience in the economic opening we have initiated."
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Prime Minister Abiy emphasized the unsustainable nature of the current situation with Franco Valuta and the need for necessary changes.
Another significant topic addressed by the Prime Minister was the progress made in alleviating the burden of national debt on the nation's economy.
He emphasized that, over the past six years, the government has refrained from acquiring new commercial debts and has successfully reduced its debt-to-GDP ratio from 30% to 17%.
The Prime Minister revealed that the goal is to continue reducing this ratio to below 10% in the near future.
He also indicated that $13 billion in debt, excluding that of the airline and telecom sectors, has been repaid over the past six years. "This effort supports our work to leave a sustainable legacy for future generations rather than passing on debt."
Despite the nearly half reduction in the debt-to-GDP ratio, Ethiopia's external debts have remained relatively stable over the past four years when measured in absolute terms.
By the end of 2020, Ethiopia's total public debt had surged to a staggering $55 billion, representing approximately 59% of the nation's gross domestic product (GDP). A significant portion of this debt--amounting to $28.8 billion, or 52%--was sourced from external creditors.
The most recent Public Sector Debt Statistical Bulletin, released by the Ministry of Finance, indicates that total public sector debt, comprising both domestic and external liabilities, reached $65.8 billion as of March 31, 2024. During the same period, external debt alone amounted to $28.9 billion.
However, the Prime Minister mentioned that the government is negotiating with creditors to restructure Ethiopia's external debt.
"If successful, the result will see the restructuring of close to $5 billion in external debt," stated Prime Minister Abiy.
