World Economy

Credit Crunch Pushing Sweeping Changes in Ethiopia

Credit Crunch Pushing Sweeping Changes in EthiopiaCredit Crunch Pushing Sweeping Changes in Ethiopia

In a surprise move, Ethiopia’s government announced it would give up ownership of some state-owned companies, respect a decades-old peace deal with Eritrea and free prisoners.

Sweeping changes that seemed unthinkable in Ethiopia just weeks ago are announced almost daily since new Prime Minister Abiy Ahmed took control as Africa’s youngest head of government, DW reported.

“The people have the full right to criticize its servants, to elect them, and to interrogate them. Government is a servant of the people,” Abiy said in his inaugural speech in early April. The 42-year-old is keeping Africa’s second most populous country buzzing.

Parliament kicked off a day by lifting a state of emergency imposed in response to protests. By nightfall there was bigger news: the prospect of peace with neighboring Eritrea after nearly two decades of border skirmishes and a two-year war.

Almost as an afterthought came word that Ethiopia, one of the world’s fastest-growing economies, was opening state-owned enterprises in aviation, telecommunications and more to part or full privatization.

That opens the door for foreign investors to buy stakes in the successful Ethiopian Airlines and Africa’s largest telecom company by subscribers, Ethio Telecom.

A party in the ruling coalition is calling for an emergency meeting, saying the dramatic reforms were decided on without full consultations. The statement by the Tigrayan People’s Liberation Front appears to be the biggest challenge so far for Ahmed.

But a shortage of foreign currency in the country is threatening the sustainability of sectors that highly depend on importation.

The Ethiopian National Planning Commission said the failure of mega projects to commence production, high demand for imported goods and growing external debt burden worsened the credit crunch.

“A number of structural and institutional reforms in the financial sector would be crucial to eliminate the forex shortage that the country is facing,” Nora Dihel, a senior economist with the World Bank told DW.

The World Bank urged Addis Ababa to make good regulatory frameworks if it is to reap the economic growth from its privatization. “Related to that, an improvement of competitiveness in general will also increase exports which will contribute to an increase of foreign exchange inflows in the country,” Dihel said.

Addis Ababa devalued its currency in October 2017 by 15% to boost its shrinking exports and increase foreign currency earning. But it is yet to bear results.



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