NBE Governor seriously concerned by challenges inflation has posed and unsustainability of Ethiopia’s worsening trade imbalance

24 Mar

By Keffyalew Gebremedhin

In his report to parliament, the Governor of the National Bank of Ethiopia (NBE) Teklewold Atnafu on Thursday disclosed that Ethiopia’s inflationary situation has boxed the country into “not easily surmountable problem.”

He said measures being taken to narrow the worsening trade imbalance alongside efforts to stabilize the market against the backdrop of world prices instability have exacerbated the trade deficit problem. He indicated that the country’s inflation is basically dependent on commodities the country imports and exports.

He amplified his point by referring to export earnings of the past seven months, which had reached $1.6 billion, most of which came from export of agricultural products. At the same time, he said goods worth $6.0 billion were imported, comprised of basic foods, raw materials, machinery, etc., without corresponding increases in exports and only bringing with them related inflation, according to news reports.

While the food imports are necessary in order to stabilize the market and that these would continue, he did not hide his worries that these imports are exacerbating the already bad inflationary situation as well as the deficits.

The governor recommended that ultimately the lasting solution to the problems of inflation in Ethiopia is increasing agricultural production and introducing changes in the produces the country exports to foreign markets. It is not clear from the news reports whether the changes in exports of goods the governor has in mind were inclusive of food produces Ethiopia is alleged to have been exporting or a reference strictly to exportable manufactured goods.

In the meantime, the governor discounted raising interest rate on savings as a silver bullet. He said that would be counterproductive since correspondingly banks would also raise interests on loans. In turn, he noted that this would make the price of loans for investments prohibitively expensive. If the bank were to rely on those measures, he underlined investments in the country would stop altogether, disrupting the country’s development, according to the news reports.

In terms of the measures so far taken, Ato Teklewold Atnafu highlighted that during the reported period NBE had successfully implemented monetary policy measures to stabilize the market. In that regard, he specifically pointed out that NBE has effectively mopped up excess foreign currency pumped into the market early on by selling dollars to commercial banks with a view to reducing money in circulation.

https://ethiopiaobservatory.wordpress.com/

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