Addis Ababa, January 8, 2020 (FBC) – The International Monetary Fund (IMF) approved last month a program for Ethiopia of 2.9 billion US dollars.
The program is aimed at supporting the homegrown economic reform agenda of the country.
The economic reform is designed to eliminate macroeconomic imbalances and lay the foundation for sustainable and inclusive growth.
According to IMF, the $2.9 billion program would facilitate Ethiopia’s transition to flexible exchange-rate system.
Fana Broadcasting Corporate asked Dr Eyob Tekalign, State Minister of Finance, what the government thinks of the exchange rate.
According to him, the country won’t rush into implementing flexible exchange-rate.
“It is unthinkable to enter into such kinds of madness (flexible exchange-rate system) by devaluing the country’s currency (birr) immediately,” he said.
The Government has attached great attention to the export sector to address macroeconomic imbalances and adjustment on exchange rates is part of this, he said.
Ethiopia will enter into flexible exchange-rate system during the three- year implementation period of homegrown economic reform agenda, Dr Eyob said.
It will be implemented when the gaps between supply and demand are closed, not by devaluing the birr, the State Minister indicated.
Ethiopia devalued its currency by 20% in 2010 and 15% in 2017 to encourage exporters and to increase its foreign exchange earnings from export.
However, since both devaluations were made in the absence of competitiveness in quality and volume of export products, they resulted in inflation.
The devaluation in 2017 in particular, had widened the gap between official (banks) and black market exchange rates, the State Minister pointed out.
Experts say flexible exchange-rate is advisable if challenges in export sector and inflation are addressed properly.