Jan Mikkelsen, IMF Resident Representative to Ethiopia said, Ethiopia’s foreign reserve, which could cover less than two months of the country’s import bill as of last September, has now improved to cover more than two months of import bill.
“A more balanced macroeconomic development will help solve the ongoing excess demand for foreign exchange. The good thing is that the government recognizes the problem and is looking for ways to make the necessary adjustments. Further, the foreign reserve of the National Bank of Ethiopia (NBE) remains at about two months of imports and has actually risen in US Dollar terms since the beginning of this fiscal year. This is a positive development which will make it easier for the government to solve the problem. It is also my understanding that the government is well aware of the need to keep monetary policy tight and reduce public sector foreign exchange demand to help eliminate excess demand in the foreign currency exchange market,” said Jan Mikkelsen, briefing journalists on Thursday.
It has been reported extensively that traders in the country were and still are facing hard currency shortages. Mikkelsen appreciated the public-sector led development strategy of Ethiopia, though, he warns of the negative impact of heavy involvement of the government in the development process of the country which he fears might result in the crowding out of the private sector. Since inflation is coming down with continuously strong economic growth, the focus should remain on policy options to sustain this growth and deflation process, he stated.
“Monetary policy should remain monetary policy to fight inflation and an expanding public sector puts the private sector under pressure. Unless the necessary balance is struck between public and private investment, the resultant effect will slow down economic growth and the creation of employment,” he said.