Tuesday, January 17, 2023
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BusinessHomegrown II takes aim at exchange rate liberalization

Homegrown II takes aim at exchange rate liberalization

Reconstruction, homegrown plans in the pipeline

The second Homegrown Economic Reform (HGER 2.0) aims to liberalize the retail market and implement a floating exchange rate system. The new strategy, which is an extension of the initial HGER that came to an end last year, will be put into effect during the following three years.

Two distinct economic strategies are now being completed and are anticipated to be approved in a month. The Ministry of Finance (MoF) and the Ministry of Planning and Development (MoPD) have put together the reconstruction plan and the second Homegrown Economic Reform (HGER 2.0) (MoPD).

The compilation of the reconstruction as well as HGER 2.0 is now being finalized, according to Fitsum Assefa (PhD), minister of planning and development, who confirmed this to The Reporter. Although it is now part of HGER 2.0, the minister claims that the concept of exchange rate liberalization is not new.

“The exchange rate liberalization issue is not new. It was included in the first HGER. But it is one of the targets of HGER 1.0 that could not materialize due to the problems we have faced,” said Fitsum.

The HGER 2.0 is divided into two components. The MoPD will manage the real sector, while the National Bank of Ethiopia (NBE) will lead the monetary part. As a result, the NBE will be in charge of the subject of exchange rate liberalization.

The reform presents solutions to macroeconomic issues such as debt distress, inflation, unemployment, and a lack of foreign currency reserves. To address the hard currency shortfall, the initiative proposes to open up the wholesale, supply, and retail markets to international market participants.

The rehabilitation plan, on the other hand, intends to mobilize resources and rebuild places devastated by the war in northern Ethiopia. The MoPD verified the report on the level of economic harm caused by the war in northern Ethiopia, according to Fitsum.

Redwan Hussein (Amb.), national security advisor to the Prime Minister, said damages amounted to close to USD 28 billion during the two year war. He said this during a meeting with political party leaders last week at the African Leadership Academy in Sululta. The Amhara regional state alone stated that the war had inflicted over 700 billion birr in economic damages (close to USD 14 billion), according to its assessment.

Experts suggest that liberalizing the exchange rate will require building up the country’s foreign currency reserve, which is still less than USD 1.6 billion and covers less than three weeks of imports.

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