Embarking upon a sweeping political reform in April 2018, Ethiopia has pursued shaking off outdated perspectives of all kinds: social, economic and political realms to the core, with the latest adds of a major macroeconomic shift. While the latest reform has been credited with attracting foreign investments, making an influx of foreign direct investments, and maximizing government revenue, among others, few others have lacked clarity over the reforms. And the impact of the reform is still a topic of ongoing debate
What has then made Ethiopia launch the latest Macroeconomic Reform Program Policy and of course what challenges and prospects is awaiting it?
The main goal of the reformed macroeconomic program, in the years to come, is to take back to track Ethiopia, whose economy survived from full-blown economic crises materialized prior to April 2018. By then, the government had inherited layers of problems, which necessitated it to undergo series of reforms, including the latest macroeconomic shift. Ahead of the recent reform, Ethiopia, under the comprehensive Home-Grown Economic Reform, had been introducing reforms which played huge roles for the national economy to remain steadfast and resilient amid turbulences over the years back.
Inspired by success stories from these reforms, which were undertaken since 2018 and spared the economy of the country from full-blown crisis, Ethiopia has appeared more ambitious while launching Macroeconomic Reform Program Policy Sunday, 28 July 2024 with the ultimate aim of building a resilient, locally strong and globally competent economy for its 120 plus million people.
As the country has pursued its commitment of widening its economic gate to private sectors, the global economic and financial actors have become more responsive. The World Bank and IMF, for instance, have already provided Ethiopia with billions of dollars only a day after the country declared its macroeconomic shift. Accordingly, the country secured a USD3.4 billion support from the International Monetary Fund (IMF) last Monday, 29th of July 2024. The government of Ethiopia announced later on Thursday that it secured a total of USD4.9 billion for debt restructuring.
During the implementation period of the reform, the government expects some potential shocks initially, but there are expertly projections that Ethiopia will embark on a new track of progress as the result of its latest U-turn like macroeconomic shift. The reform from the beginning is in fact receiving overwhelmingly positive responses of development partners.
The country’s move to a market-based foreign exchange rate has been favored both by local and international economics analysts, yet few have warned that the move could drive up inflation and the cost of living. Interestingly enough, the reform has come with such subsidy plans as salary raise and safety net programs, for low-income and vulnerable segments of the population.
A seasoned economist and multisector investor, Ermias Amalga, favors the present reform, which allows liberalization of the economy, dictating that it would help the country in boosting productivity and export, overcoming debt burden and ensuring better foreign exchange earnings.
As well chronicled, prior to 2019, Ethiopia's economy enjoyed sustained growth, despite underlying macroeconomic imbalances triggered by weak fiscal policy, misgovernance, poor state-owned investment projects performance, ineffective external debt structuring, corruption and political instability among others. The country’s economy could not have survived the extreme shocks resulted from the aforementioned factors as well as global economic slowdown, COVID19, and conflict had it been not for the Home-Grown Economic Reform crafted and launched after 2018.
Put in nutshell, the implementation of the Ethiopia's macroeconomic reform is a bold measure by the government in a bid to shake off the inherited economic bottlenecks to its core. It is expected that the implementation may momentarily face minor shocks, for which remedial intervention mechanisms have been put in place. But, looking the bigger picture, there is no gain without pain, and the new macroeconomic landscape could ultimately help Ethiopia substantially alleviate its debt burden, maximize forex earnings, improve trade balance, increase national revenue, attract better foreign direct investment and alleviate poverty.