The liberalisation mantra of the administration of Prime Minister Abiy Ahmed...

June 8 , 2019

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A group of economics gurus from Harvard University were in town last week, trying to help the federal government chart a new course for the national economy, gossip learned. Paid by USAID, these economists were having conversations with the notables in the macroeconomic field of Ethiopia, hoping to unlock the bottleneck in the liberalisation mantra of the administration of Prime Minister Abiy Ahmed (PhD), claims gossip.

The Prime Minister has surrounded himself by young and mainly Western-educated aides in his bid to restructure the economy. Eyob Tekalegn, state minister for Finance & Economic Cooperation, chairs his reform committee, which authored a 40-plus page blueprint for reform, according to gossip. Endorsed by the Council of Ministers two weeks ago, details are hard to come by; but, mostly, the document wants to rebalance growth drivers in the economy.

These reform-minded young men have in mind a growth model that believes in the might of the state. For over a decade, policymakers were keen to see the state and the many enterprises it owns as instruments to affect economic growth. Thus, a significant amount of finance was directed to them.

In the four years beginning with 2015, domestic debt held by the public sector doubled to close to 800 billion Br. Of these, state-owned enterprises had issued bonds and took loans worth over 380 billion Br, much of it funneled through the state-owned Commercial Bank of Ethiopia (CBE), which holds 56pc of the debt.

This has put the CBE at higher risk than its management is prepared to admit, claims gossip. A single borrower, the state-owned Ethiopian Electric Power (EEP), claims close to 290 billion Br in debt, an amount that surfaces conveniently in the CBE’s books to beef up its profit but is very doubtful to be paid back in full, gossip disclosed.

Guaranteed by the federal government, it will not be long before its board of directors, chaired by Ahmed Abitew, confronts the management board led by its president, Bacha Gina, over such unpleasant facts, claims gossip. Of the 10 directors currently serving on the CBE board, two are very close to the Prime Minister: Mamo E. Miheretu, Ethiopia’s chief trade negotiator and policy reform advisor, and Temesgen Tiruneh, his chief national security advisor.

Changing this direction to let those in the private sector get access to finance, if not ease the regulatory and bureaucratic burden in doing business, is the primary focus of the blueprint, claims gossip. Hence, of the over 400 billion Br the banking industry has advanced in loans over the past 11 months, the amount that was disbursed to private borrowers has increased by 45pc, gossip learnt.

Policy advisors feel that the picture at the macroeconomic level looks positive, judging by how much consumption in electricity, fuel, edible oil  and consumer goods has increased. Revenues generated from remittance and flowing from foreign direct investments is on the rise, helping the foreign exchange reserve position improve.

To the contrary though, the market feels the slowdown in economic activities in broader terms, where individual income is eroded due to galloping inflation and the continued loss of the value of the Birr against other currencies. Obviously, the construction sector, the main driver of the service sector, has been in a slump leading to massive layoffs; factories are working far below their capacities; and national productivity in agriculture is not as much as projected earlier this year.

What drives inflation? Which sector of the economy stimulates growth? In a situation where the state is not driving public investments, where does all the money advanced to the private sector go?

These are the million dollar questions economic policy reformers and the guys from Harvard seem to find hard to crack, gossip observes.

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PUBLISHED ON Jun 08,2019 [ VOL 20 , NO 997]

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