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Toronto — Less than a month after announcing a one trillion birr national budget, the Ethiopian government is now seeking approval of an additional 550 billion birr from Parliament for the 2017 fiscal year (2024/25 G.C.).
Eyob Tekalegn, State Minister for Finance, disclosed on Monday that the additional 551 billion birr requested will be presented to the House of People’s Representatives.
A significant portion of it is allocated for social support. Eyob specified that “240 billion birr is allocated for social support.”
He revealed this during an interview with Fana Broadcasting Corporate, a state-owned media outlet, regarding the implementation of the Macro-Economic Policy.
“The policy reform is an effort to build a lasting and reliable economy,” Eyob Tekalegn was cited as saying.
In an explanation to the need for the additional budget—more than 50 percent of the already approved budget—Eyob stated that the “government has considered the situation of low-income citizens when fully implementing the macroeconomic policy.”
He described the additional budget as “critical” for government subsidies to those without a permanent income who are beneficiaries of the Social SafetyNet. The government has also announced a 300 percent salary increase for low-income earners in the public service.
Furthermore, Eyob justified the need for the requested additional budget in terms of subsidies for imported items, including cooking oil, fuel, and pharmaceuticals.
Last week, the Ethiopian government announced a decision to shift to a “market-based” foreign exchange regime— a departure from Ethiopia’s regulated foreign exchange system.
On the first day of the “market-based foreign exchange,” state-owned banks sold US$1 for about 73 Ethiopian birr, marking a devaluation of the Ethiopian currency by about 17 percent. However, the depreciation worsened within a few days. The latest from state-owned banks indicates that $1 is now selling for over 100 Ethiopian birr.
The decision to devalue the Ethiopian birr appears to be influenced by what seems to be a compulsory imposition from the International Monetary Fund (IMF) and the World Bank, presented as a policy prescription for the Ethiopian government to achieve what Abiy Ahmed’s administration framed (or was made to frame) as a “homegrown economic growth plan.”
The government claims to have received over $10 billion following the announcement to fully implement the macroeconomic policy reform – which appeared to be a condition that the lenders (IMF and World Bank) attached to the financial arrangement.
Prices for basic commodities, including food, have risen further following the policy change. The government has started to arrest businesses for alleged price gouging but many see it could not resolve the market situation durably
The currency devaluation has triggered extensive criticism from notable economists, opposition parties, and even rebel groups. The Ethiopian government, like the IMF and World Bank, refers to it as “bitter medicine.”
Amid fears of potential public protests, the government is on high alert. Crackdowns are already underway in the capital, Addis Ababa, according to local news sources.
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