Skip to main content
Administering anesthetics no use to anemic economy

Administering anesthetics no use to anemic economy

While presenting to Parliament the federal government’s draft budget for the current fiscal year at the end of the previous fiscal year, the Minister of Finance warned that the downward trajectory the Ethiopian economy was on since 2015 required urgent solutions.  He explained that the macroeconomic imbalance brought about by the political and social unrest rocking Ethiopia for the past four years had a detrimental impact on the economy. According to the Minister, the 10.1 percent average growth registered during the five years of the first Growth and Transformation Plan (GTP I) period (2010/11-2014/15) decelerated to an average of 8.6 percent in the three years of GTP II (2015/16-2019/20) and contracted to 7.7 percent during the 2017/18 budget year. The plethora of challenges which arose during the GTP II period including, inter alia, a widespread security breakdown, the declaration of a state of emergency, the hampering of the free movement of persons and goods, the slowdown in trade and investment, the weakening of the service and tourism sectors, the shocking slump in export earnings, the chronic foreign exchange crunch, the mounting domestic and external debt stress, and the alarming fall in production and productivity  have all taken a toll on the economy. It would be a mistake to attribute these problems solely to political factors. In fact the outsized role the government plays in the economy at the expense of the private sector—the rightful engine of economic growth—is to blame for the nation’s economic woes.

It’s been months since the administration of Prime Minister Abiy Ahmed (PhD) embarked on a host of reforms aimed at rebalancing the Ethiopian economy. The first order of business is to chart the correct course. The developmental state model pursued for over a decade now was fraught with structural problems. Though the developmental state theory is in essence about empowering the private sector, the reality on the ground could not have been further from this due to the outsized role the government has been playing and continues to play in the economy. The slew of mega projects launched by the government have not only sidelined the private sector but also starved it of funding it desperately needed. The mismanagement and lack of proper regulation besetting the projects, which were financed for the most part by external loan, have forced the country to incur massive debt levels that will prove to be a burden for future generations. The economic reform needs to be informed by lessons from past mistakes. Towards this end it is imperative to make use of seasoned professionals, solicit recommendations that serve as policy inputs, adapt best practices in a manner fitting Ethiopia’s unique conditions as well as articulate pragmatic and viable solutions.

The new homegrown economic reform agenda unveiled in September by the government outlines macroeconomic, structural and sectoral reforms that will pave the way for job creation, poverty reduction, and inclusive growth. The reform plans to alleviate such macroeconomic problems as unemployment, inflation, foreign exchange shortage and high debt stress in the next three years. Identifying the problems on the ground accounting for the unenviable state the economy is in is the first step in addressing them decisively. Once the correct diagnosis is made the proper treatment can be prescribed. Given that the mobilization of the requisite resources both domestically and from international partners is critical to the success of the reform, it’s absolutely important to encourage the efforts to secure them in full at the time they are needed. The pledge by the World Bank, the International Monetary Fund, the African Development Bank and other financiers to provide loans and grants is heartening. This said, the downsides, if any, of the support given by these institutions must be looked into carefully in order to mitigate them.

A raft of measures needs to be taken to breathe a new life into the flagging Ethiopian economy. Paramount among these are creating an enabling environment that fosters foreign direct investment; enforcing strict fiscal and monetary policies; enhancing the country’s creditworthiness in the eyes of lenders; taking appropriate steps designed to reduce the state’s heavy presence in the economy; instituting a privatization regime consistent with the national interest; rectifying the mismanagement associated with foreign currency administration and lending practices; setting a prudent exchange rate and anti-inflationary policies; and reforming the regulatory bank so that its functions are properly defined. These tasks require an unswerving commitment and integrity on the part of policy makers and implementers. It’s of the essence to exercise caution lest powerful interests based overseas take over strategic public enterprises under the guise of privatization and hold the country hostage. Aside from this every effort ought to be made to convince lenders, as was done with China, to restructure the debt owed to them until such time the economy is able to stand on its own two feet. Moreover, job creation efforts have to be ramped up in view of the resulting economic, political and social dividends. In particular youth employment creation drives have to transition from short-lived initiatives to long-term undertakings. The headwinds confronting the nation’s economy cannot be staved off through measures akin to fire fighting.

The prospects of unlocking Ethiopia’s development potential are bright. Needless to say peace and political stability are vital in this regard. Every inch of the country should be conflict-free; citizens have to enjoy the right to live and work anywhere within the national territory; all illegal activities deterring trade and investment need to be rooted out; and everything possible must be done to assure an uninterrupted supply of basic goods and services. Although the responsibility to uphold law and order primarily rests on the government, the general public is duty-bound to contribute its share as well. Prosperity cannot be imagined without peace. That is why the necessary preparations have to be made to see to it that the upcoming general elections are free, credible and peaceful. It’s particularly incumbent on the leaders, members and supporters of political parties to set an example by ensuring that the elections meet international standards.  This will go a long way towards laying the groundwork for sustainable peace and development. Failure to pay whatever sacrifice is necessary in order to safeguard peace is bound to have dire consequences for all. Ethiopians would do well to understand that from now on administering anesthetics is no use to the nation’s anemic economy.