NBE, Finance Ministry gear dynamic approach to counter economic turmoil

National Bank of Ethiopia (NBE) and Ministry of Finance (MoF) are looking into alternative tools to combat the macroeconomic situation in the country against the traditional tight fiscal and monetary policy instruments.
In his latest appearance at parliament, Yinager Dessie, Governor of NBE, underlined that; foreign currency shortage, inflow reduction of official and non-official remittance, slowdown of some export items like gold, instability and logistics, the value of external debt service increment, inflationary behavior as internal issue and Ukraine-Russia conflict and price hike on some strategic commodities like petroleum is affecting the economy.
To ensure economic stability the governor pointed out that the central bank and MoF had geared for tight monetary and fiscal instruments which however were difficult to implement, “Imposing tight monetary and fiscal policies has become unfeasible due to the reality on the ground.”
“The internal and external situational pressures have made it difficult to introduce controlling instruments in monetary and fiscal policy,” he added.
In most cases, NBE is responsible to introduce monetary policies to mitigate pressures in the economy. For instance it has recently introduced the establishment and operation of treasury bonds through directive no. MFAD/TRBO.001/2022.
Based on the new directive banks will now buy the treasury bonds at 20 percent of fresh loan disbursement.
According to the new directive that has become effective as of November 1, 2022, every month each bank shall notify NBE in writing its own respective allotment amount within ten days after the end of the reference month with the applications ratio for the allotment being 20 percent of disbursement.
The interest rate for each treasury bond shall be two percentage points higher than the minimum saving deposit rate, which is seven percent. The bonds shall have a maturity period of five years but the government will pay interest accrued on the bonds on annual basis.
Similarly, MoF is expected to impose fiscal policy instruments like tax issues to manage the economy including duty free schemes for some basic commodities and even allow the Franco Valuta modality to import commodities like edible oil and infant foods.
The finance Ministry has also allowed importers to not mention the hard currency source when importing basic commodities through Franco Valuta.
However the effect on the market is not perceptibly successful with regards to price reduction, even though some commodities shall be available in the shops shelves through the initiative that MoF introduced in the past budget year.
“Now we are responsively discussing with MoF to come up with alternative instruments to introduce a mitigation mechanism to tackle challenges that face the economy,” the governor said on his quarterly report to the Plan, Budget and Finance Affairs Standing Committee at parliament.
Since the conflict in northern Ethiopia erupted, foreign partners particularly western countries and organizations have pressurized the government in different schemes including holding approved foreign grants and loans. In contrast, the government has been committed to settle its debt service even though the inflow was lower which made government to allocate significant amount of foreign currency for debt service.
The overall amount of foreign financing disbursed over the last one year (2021/22 budget year) was much less than what it was over the previous 4 years.
Despite the challenges, Yinager pointed out that positive results have been realized in agricultural productivity which slightly contributed to ease the burden in the economy.
“The new intuitive introduced by the government on agricultural productivity has contributed to mitigate the economic pressure to some extent but we have to expand it in other areas to narrow the demand and supply gap,” he said.
He called other regulatory bodies and regional administrations to work strongly in connection to production and productivity in every aspect including agriculture sector which is pivotal in supporting the monetary and fiscal policy.

The post NBE, Finance Ministry gear dynamic approach to counter economic turmoil appeared first on Capital Newspaper.

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