Roundup: Experts question Ethiopian National Bank’s currency devaluation

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Wednesday, October  11, 2017

 

Source: Xinhua| 2017-10-11 03:28:39|Editor: yan

ADDIS ABABA, Oct. 10 (Xinhua) — Ethiopian experts on Tuesday questioned the Ethiopian National Bank’s move to devalue the Ethiopian birr (ETB) by 15 percent as of Wednesday.

According to the National Bank of Ethiopia (NBE), the ETB devaluation, due effective as of the first day of the second month of the Ethiopian year on Wednesday, is mainly designed to attain Ethiopia’s target to increase the earnings from the export sector during the recently commenced Ethiopian 2017-2018 fiscal year.

Costantinos Bt. Costantinos (Phd), who is a professor of public policy at the Addis Ababa University, told Xinhua that the move by the National Bank of Ethiopia could fall short of addressing the problem.

“The staggering devaluation of the birr, from a value of 23.75 to the U.S. dollar to 27.00 birr, which was evidently taken to enhance export performance, represents an important recognition by the bank that its policy setting had been a factor in inhibiting Ethiopia’s external performance. However, this move by itself falls short of addressing the problem,” Costantinos stressed.

Yohannes Ayalew, Chief Economist and Vice Governor of NBE, briefing journalists concerning the devaluation of the ETB on Tuesday, indicated that Ethiopia’s export sector has been growing rapidly at 24.1 percent between 2003 and 2011.

According to Ayalew, the decrease in prices of commodities at the global market, the country’s export performance declined between 2012 and 2016. The decrease has highly affected Ethiopia’s main export committees such as coffee, oil seeds, leather and leather products as well as gold.

Costantinos, however, asserted that “given the role that devaluation had played in promoting domestic price stability, which follows on the heels of a sequence of stealth devaluations over the past years and a radical devaluation in August 2010, leaves open the question of the strategy to maintain macroeconomic stability while it seeks to boost the export performance.”

Ethiopia had in August 2010 devalued its birr by 16.7 percent, a move the Ethiopian government said was made to spur economic growth and boost foreign trade.

Costantinos argued that leaving aside a set of macroeconomic measures to be undertaken in the national economic policy and fiscal policy outside the jurisdiction of the NBE, “devaluing the birr alone might prove to be disappointing in terms of boosting exports, both in the very short term and in the long run, conditional on the reaction of imports and exports as opposed to imports.”

The national bank has also announced the plan to increase the interest rate on deposit by 2 percent from the previous 5 percent to 7 percent.

Costantinos’s argument has been also shared by desperate Addis Ababa dwellers, who expressed their fear that the value of exported goods “could increase as the value of the ETB dropped.”

Getache Birhanu, an Addis Ababa resident, said that the value of some imported products that do not have substitute local commodities, such as electronics products, “will certainly rise as the value of birr dropped.”

According to Costantinos, imported merchandises that are part of the value chain for domestic production for exports, such as spare parts, raw material, fuel and others, have a high import essence and “birr devaluation could badly hurt their affordability.”

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