A declining export, acute shortage of hard currency, an insatiable demand for imports, widening trade deficit and a crushing foreign debt. Ethiopia’s economy is heading to a crisis.
BY ESAT NEWS
Ethiopia will devalue its currency to attract foreign investment and close the gap in foreign trade, President Mulatu Teshome said at the opening of the bicameral parliament on Monday.
He said his government is faced with a serious shortage of hard currency and export trade has dwindled in last three years.
Mulatu said major projects like the construction of railway and universities will not be carried out this budget year due to a serious shortage of finances.
The president said more taxes will be levied on the big taxpayers to boost the amount the government obtains from taxes.
Last month ESAT, quoting its sources, reported that the country would devalue its currency in a bid to cope with the serious foreign currency crunch and in attempt to cover a billion dollar loan payment due this years.
Critics say further devaluing the country’s currency would shoot the price of food even higher, increase transportation fares and rent, affecting those in retirement and those who live paycheck to paycheck.
Ethiopia Devalues Currency, Raises Interest Rates
In the midst of a Forex currency crisis, the National Bank of Ethiopia (NBE) has devalued Birr by 15% and raised the interest rate by two percentage points to seven percent.
The devaluation pegs the Ethiopian Birr at 26.91 to the dollar, up from 23.40 Br on the official market. It will be effective from tomorrow, October 11, 2017.
The Central Bank justifies the move as an effort to control the inflationary pressure and prop up export earnings. The export proceeds have been stagnant at around three billion dollars for the past three years, whereas inflationary pressure has been in the double-digits for the past two months, having reached 10.8% in September 2017.
Yohannes Ayalew (PhD), Vice Governor and chief economist at the Central Bank, announced the adjustment today in a press conference where only the state media was invited to attend.
Seven years ago, the government had made a 17pc devaluation resulting in inflation that had reached as high as 40pc.
“Since investment return is high in Ethiopia, the devaluation won’t cause an inflationary pressure and adversely affect import,” said Yohannes.
For more than half a year, the official exchange rate stood at around 23 Br to the dollar, while black-market traders sold a dollar for nearly 29 Br.
The current devaluation surfaced almost 11 months after the World Bank (WB), in its fifth economic update, suggested the government devalue the currency to raise the country’s competitiveness in the global arena. The recommendation, however, was rejected at the time by Yohannes, although the real effective exchange rate (REER) has appreciated in cumulative terms by 84pc since the nominal devaluation in October 2010.