Fortune News | Nov 27,2018
April 9 , 2022
By Asseged G. Medhin ( Asseged G.Medhin, deputy CEO of Global Insurance Company. )
Several reforms in the economic front have been employed over the past three years. They range from liberalisation efforts to tax reform and monetary policy reorientation. However, none have shielded the economy from internal and external variables. The latter has been the impacts of COVID-19, global supply chain disruptions and commodity price volatilities. Internal failures have been resistance to reform and conflict that consumed a chunk of government spending.
Household incomes are not rising as rapidly as they should, leading to low national savings and consequently only limited capital to be deployed as investments. At the same time, tax revenues are only enough to meet the country’s needs, with little left over to finance development. Under these circumstances, deficit financing may appear to be an easy method of providing finance to expand investment and hence to be an easy way of obtaining capital for a more rapid expansion of output. If a government can persuade the central bank to create money to finance a development programme, or if the banking system freely makes loans to private investors for the finance of physical investment, the problem of expanding the country’s real assets may appear to be easily solvable.
There is no doubt that, on occasion, a monetary expansion greater than the increase in real output will introduce an element of flexibility in an economy, releasing resources for development. However, there are strict limits to the amount of development that may be fostered without creating hyper-inflation.
The less inflation there would be going forward, the moment the government pulls out from the money markets – ceasing borrowing from commercial banks through the treasury markets and the central bank. If inflation is lower, so would be consumption and more money can go into investments. More production will help the economy use its competitive land and labour advantage, more than any other in the region. The government should look for other workable strategies that will increase production and individual income of the nation.
In any economy, the monetary system operates on the assumption that a currency serves as a satisfactory medium of exchange, store of value and unit of account. If prices are stable or rising imperceptibly, citizens will find the currency less acceptable. The Birr is facing pressure as it loses its value due to the effects of low savings, weak export, deficit financing and devaluation. If we are not careful in measuring the impact and providing proper intervention, it could sweep away any wealth held by households. The increasing cost of living and the fall of household’s disposable income is shrinking by the day. These threats could mean a financial apocalypse from which many any active participant will not recover.
The impact of inflation on the daily earning capacity of citizens should be the government’s priority. Individual units of investment financed by bank credit are indeed likely to be created even in inflationary conditions. It is not the immediate products of monetary expansion that are in question; rather, it is the overall effect on the supply of money in the market where the real purchasing power of money is significantly discounted by the marginal rate of inflation over interest rate. Such a trend, at some point, will create financial crises since the real value of assets might drop as a result of latent economic growth.
As long as prices keep rising, the real value of any increase in money holdings will be eroded. This fall in the real value of money may be considered a tax on money holders. Inflationary policies, or policies which lead a government to be weak in resisting inflationary pressures, may be assessed by criteria similar to those used in assessing alternative taxation proposals. We need a wise, long-sighted and effective price adjustment intervention for our economy before the rate of inflation surpasses the capacity of absorbing shocks. The economic misalignment needs to be addressed before it creates a financial storm that bankrupts the country.
PUBLISHED ON Apr 09,2022 [ VOL 23 , NO 1145]
Fortune News | Nov 27,2018
Radar | May 08,2021
Viewpoints | Jan 23,2021
Fortune News | Jan 26,2019
Viewpoints | Oct 16,2020
Featured | Sep 28,2019
Editorial | Jun 17,2020
Radar | Nov 13,2021
Fortune News | Mar 09,2019
Photo Gallery | 53228 Views | May 06,2019
Fortune News | 46048 Views | Jul 18,2020
Photo Gallery | 44987 Views | Apr 26,2019
Fortune News | 44815 Views | Sep 01,2021
Commentaries | Jul 02,2022
Life Matters | Jul 02,2022
My Opinion | Jul 02,2022
Sunday with Eden | Jul 02,2022
Agenda | Jul 02,2022
Editorial | Jul 02,2022
July 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
November 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
November 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
October 16 , 2021 . By HAWI DADHI
Residing in a country with no capital market, an organised marketplace for trading se...
The pandemic, armed conflicts and natural disasters have again brought the importance...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country’s most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or tw...
July 2 , 2022
After nearly two years since the civil war broke out in northern Ethiopia, adversarie...
June 25 , 2022
It is not the best of times to be in charge of governance in Ethiopia, whether at the...
June 18 , 2022
Some of Ethiopia's economic policymakers may take solace from realising that inflatio...
June 11 , 2022
The stereotype many people have of parliamentarians is as clueless seat fillers who exist to rubber stamp legislative bi...
PM Abiy Ahmed (PhD) at a Gala Dinner Called for the Awarding of the Félix Houphouët-Boigny Peace Prize
May 6 , 2019
A couple of years ago, I was having a conversation with a friend and mentor who has...
The advertising industry in Ethiopia has come a long way. They are not only getting better and more creat...
In an economy that has slowed, where consumers are hammered by inflation, and the private sector is teetering on edge, one industry has a br...
July 2 , 2022 . By TSION HAILEMICHAEL
Getu Gelete has struck a deal to acquire a 40pc stake in Habesha Cement S.C., buying out Pretoria Portlan...
July 2 , 2022 . By BERSABEH GEBRE
Lake Ayalew, minister of Revenues, moved to address complaints about inflationary distortions on capital...
July 2 , 2022 . By BERSABEH GEBRE
The federal government is set to roll out a single-account treasury system for the coming budget year, co...
Or see contact page