Skip to main content

Ethiopian News Main Image

The Governor of the National Bank of Ethiopia (NBE) painted the usual rosy picture about the downward trajectory of inflation in Ethiopia while presenting the central bank’s quarterly performance report to Parliamentarians this week. Governor Mamo E. Mihretu told legislators that thanks to raft of monetary policy measures it instituted beginning August inflation has declined from 29.3 percent by the end of last June to 27.7 percent in September, noting the rate was 35 percent in March 2023. One such measure he made mention of was limiting domestic credit growth to 14 percent for the current Ethiopian fiscal year ending June 30, 2024 in comparison to the previous year and instructing commercial banks to confine their aggregate credit disbursement in compliance with this ceiling. He also attributed the decline to the slashing of the amount of Direct Advances to the Government this fiscal year, which restricted such lending to just one-third of the prior-year levels, and increasing the interest rate of its Emergency Lending Facility, utilized by banks when facing liquidity problems, from 16 percent to 18 percent.

The Governor’s optimistic outlook comes amid skepticism from lawmakers who, despite acknowledging the bank’s efforts to tackle inflation, underscored that inflation continued to take a heavy toll on the lives of the majority of the Ethiopians. One of the biggest macroeconomic challenges Ethiopia has been confronted with over the past two decades has been the astronomical rise in the prices of goods and services without a commensurate hike in income levels. A policy document published by NBE some three months ago reveals that inflation averaged at around 16 percent in the last decade but skyrocketed to over 30 percent in the last two years. The surge in the prices of basic necessities like food, housing, medicine and transportation has made life a living hell for the poor. The inexorable escalation of the cost of living is bound to set in motion a socio-economic upheaval that in turn engenders a steep political cost unless prompt steps are taken to address it decisively.

The factors that have stoked inflationary pressures have been around for quite a while now. Among these are the failure to fix supply-side constraints preventing the adequate supply of basic commodities; the substantial amount of government revenue spent for the repayment of the sizable public debt; and the high cost of doing business owing to the inefficiency of the logistics sector. The monopolization of the market by a handful of players and the unintended consequences of the steps taken by the government to rein them in; the rapid money supply growth initiated by the central bank and the relatively fast pace at which it has allowed the domestic currency to depreciate, which caused the price of imported goods to soar, have also contributed to the unrelenting increase in the inflationary rate. Furthermore, the considerable amount of money spent on countering the rebellion in several areas of the country and the rehabilitation of the victims of humanitarian disasters have driven inflation as well.

Tackling Ethiopia’s backbreaking inflation requires a comprehensive approach involving coordination between monetary, fiscal, and structural policies among multiple stakeholders. This should be augmented by effective communication and public awareness campaigns that help managing inflation expectations and support policy measures. No one should labor under the impression that inflation can be brought down to low levels in the short-term given the factors that account for it are intractable and require long-term solutions. Nevertheless, the job of tackling inflation must commence urgently.

The NBE is one of the key macro-institutions entrusted with undertaking a host of such vital functions as maintaining price stability and facilitating the economic growth of Ethiopia. However, it is not the only institution that plays a role in tackling inflation. This said, it needs to undergo a fundamental reform if it’s to discharge the duties entrusted to it in terms of bringing inflation down. Governor Mamo has informed legislators that a draft law that ensures it is independent and operates with greater transparency, which he says will enable it to accomplish this core mission, is in the pipeline. Reforming the central bank though is not sufficient in itself to make inroads into reducing inflation to a single digit—a goal it has failed to achieve in spite of the plethora of steps it has taken to that effect. That is why it’s imperative that the intended reform of the central genuinely allows it to carry out its duties free from unwarranted political interference. Otherwise, its oft-repeated pledge that inflation will minimized to manageable levels will remain an empty promise.

#Central #Bank #Reform #Ensure #Independence #Reporter #Latest #Ethiopian #News #Today

Source link


Author admin

More posts by admin

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.