In a press briefing at the Prime Minister’s Office on Thursday September 2, 2021, State Minister of Finance, Eyob Tekalign (PhD) explained about the successes and challenges of the Ethiopian economy over the past couple of years. He assessed that the Ethiopian economy exhibited “remarkable performance” over the past year. He noted that the economy remained resilient and maintained a stable and promising path despite multiple shocks. He identified these shocks to be: the Coronavirus pandemic, the global slowdown, the locust invasion and the war in the Northern part of Ethiopia. Eyob (PhD) said: “despite these challenges, the economy stayed on course overall. We believe this is a result of the broad based reform we have been implementing over the past two years since the launch of the home grown economic reform program.”
The assessment and remarks from the State Minister are hard to swallow for ordinary citizens as they come amid a considerable hike in the cost of living. The price of commodities rises on a daily basis. People’s incomes have been stretched so thin that they barely cover rent and groceries. In a country where 70 percent of the private and public employees make less than 3,000 birr (as per Prof. Alemayehu Geda’s figures), ensuring survival is a huge task on its own. It’s difficult finding a rental house for less than 2,000 birr these days. Five liters of edible oil is sold for 650 to 700 birr. Considering the countless expenses required to make it throughout the month, it is nearly impossible for households to withstand the economic pressures.
These are not just individual assessments. The government has also acknowledged the economic strains and has recently been engaged in putting out the fire. A source working on governmental efforts to re-establish a public office dealing with governmental communication told The Reporter that the government has identified economic sabotage as one of the war fronts waged by the TPLF and its international backers. Recent measures by the National Bank, Ministry of Trade and other relevant authorities to regulate the financial sector more and clamp down on illegal activities such as hoarding and unwarranted price increases are in line with that analysis.
Despite these gloomy realities on the ground, the State Minister stated that the home grown economic reform is proving to be a success as it has helped ensure stability, encourage economic activity, private sector development, job creation, set the institutions and capacity for sustainable growth. Eyob (PhD) pointed out that the 6.1 percent economic growth registered during the past Ethiopian fiscal year is testament to the hard work done to stand against the global economic slowdown.
He also asserted that early high frequency data from the new Ethiopian fiscal year show that there should be a re-bound in the economy. Although the figures won’t be released until late September or early October, he used early indicators to assert that a rebound is on the cards. His financial sector assessment also featured some rosy figures and deduced that the government is on track to achieve the goal of reducing debt stress by the end of the reform period. Eyob (PhD) also pointed out that the government has made efforts to address structural deficiencies in the economy. He pointed out productivity improvements across sectors and reduction of high import dependence as just two aspects of such efforts. The latter include efforts to replace the import of wheat and edible oil.
Eyob’s (PhD) report paints a favorable assessment of the Ethiopian economy and depicts it as one with quite a sizeable amount of success across all sectors. The big question here, however, is: are we not supposed to feel these positive aspects of the economic growth?
The prominent economist Alemayehu Geda (Professor) argues that we should. He pointed out that one reason why we fail to relate to the State Minister’s assessment might be the abuse of statistics by governmental bodies. To substantiate his argument, he cited two instances. The first one has to do with the figures Eyob (PhD) quoted for export. The State Minister stated during the briefing that the export sector grew by 19 percent and that the mining sector grew by more than 1,000 percent. The economics Professor argues that the steep increase in Gold export is behind the exponential rise in the mining sector, underscoring that the rise came for non-economic reasons. Some gold exporters had their bans lifted, shooting up the numbers that went down considerably following the ban. Alemayehu (Prof.) noted that with Gold excluded from the equation, export has decreased by 14 percent. He alleges that an endeavor to find the average for these numbers would conceal the reality.
Another instance he raised that indicated statistics related problems that might have concealed the reality has to do with inflation. Alemayehu (Prof.) stated that by raising the price of commodities, inflation might contribute to spikes in government revenue. For instance, the VAT collected from 100,000 birr worth of service is 15,000 birr. However, the amount collected doubles when the price rises to 200,000.
Alemayehu (Prof.) believes that inflationary problem wraps up all problems within it. He said: “inflation is the chief of all macro-economic problems.” He noted that it indicates how fiscal policy, agricultural productivity, trade and other variables are faring. According to the Professor, failures in controlling inflation are proof of failure in so many aspects.
As per the Professor’s analysis, the scenario for the economy doesn’t seem so bright as well. He underscored that war exacerbates inflation and if the war was to stop today, its inflationary impacts would go on for six months to a year. He pointed out that Western countries resorted to paying their soldiers in rations, a concept at odds with their capitalist view, to combat inflation after World War II. He urged the need for price controls to mitigate the huge impact of inflation during times of war.