Ethiopian Review

By PAWLOS BELETE | Addis Fortune

Quick disbursement of foreign aid and the introduction of a multiple currency exchange package could serve as short-term solutions to deal with the impact of the global economic crisis on Ethiopia’s economy, experts disclosed.

The suggestion came from a group of economic experts who, last Thursday, April 30, 2009, were at a workshop the Ethiopian Academy of Financial Studies conducted at the conference hall of the National Bank of Ethiopia (NBE).

Four research papers: the global financial crisis and its impact on Ethiopian economy; assessment on the legal framework for microfinance institutions in Ethiopia; the need for payment system modernization vis-à-vis the existing payment system in Ethiopia; and business ethics, competition and regulation in the Ethiopian Insurance Industry were discussed at this workshop dubbed “Topical Financial Sector Issues”.

The paper presented by Yemisrach Aklilu, a senior researcher at the NBE, which deals with the global financial crisis and its impact on Ethiopian economy, analyzes the cause of the crisis and its impact by splitting economic variables into sectors. The researcher argues that the cause of the global financial crisis is attached to the sub-prime mortgage, which she said is the result of regulatory failures. The impact of the crisis on Ethiopian export is that the unit price and export volume of most export commodities declined since most of Ethiopia’s trading partners are in deep recession.

On the other hand, declining international prices of food, metal, and fuel give Ethiopia the advantage to import more at a decreased cost, according to her.

The idea that Ethiopia is reaping the advantages of international price decline was challenged by many participants. One of them is Leikun Brehanu, president of Awash International Bank. He argued that though the international price is going down, Ethiopia is not benefiting more from the decline since the country is facing a serious foreign exchange shortage.

The researcher counter argued that the price deceleration in the international market has helped policy measures that were being taken to tackle inflation. Since most Ethiopian migrants live in Europe and USA, where the crisis is stronger, the remittance flow will possibly decline. Although it is too early for a quantitative analysis, the flow of foreign direct investment is also likely to decline as well, according to the researcher. Because donor countries are in deep recession themselves, the external grant and loan assistance would decrease. Earnings from tourism could also possibly suffer the same decline.

Gebrehiwot Ageba (PhD), a lecturer and researcher at the Addis Abeba University Department of Economics, highlighted the need to show a comprehensive picture of the crisis on the overall economy of the country.

He explained that this is imperative for policy prescription.

In a stance to defend his government, Sintayew Weldemariam (PhD), former minister of Education, now economic advisor at the central bank, argued that Ethiopia will record a double digit growth despite the global economic situation.

However, both the World Bank and the International Monetary Fund (IMF) speculate that Ethiopia’s growth would be around 6.5pc.

Although Yemisrach’s paper recommends vender financing as a short-term solution to overcome the foreign currency crunch the country is faced with, Eyob Tesfaye (PhD), director general of Public Financial Enterprise Supervisory Agency, argued that vender financing is a medium-term solution, while sharing the view that the short-term solution is quick disbursement of foreign aid and the introduction of a multiple currency exchange package.