Decision Made on FX Management Milestone to Foster Sustained Economic Growth

Addis Ababa, August 3, 2024 (FBC) – National Bank Governor Mamo Mehretu remarked that the decision made on foreign exchange (FX) management system is historical aimed at fostering sustained economic growth.

He emphasized that the government was not compelled by lending institutions to implement indigenous macroeconomic reforms, but rather saw it as a necessary step to address pressing economic challenges.

The Governor outlined the shortcomings of the previous macroeconomic policy, which included rampant inflation, foreign currency shortages, an inefficient financial system that marginalized the private sector, and excessive reliance on foreign credit.

He highlighted that economic growth was primarily driven by government investment financed through loans in unsustainable model.

To rectify these issues, the reformist government devised a Homegrown Economic Reform strategy, the Governor added.

The successful implementation of the first phase of this reform has yielded impressive results, such as reducing public debt to 17.4 percent from over 40  percent and significantly increasing private sector participation in the financial system.

The Governor stressed the measures taken to improve the management of public enterprises and the creation of new institutions to stimulate investment.

He stated that the country embarked on the full implementation of the macroeconomic policy with a view to create a solid foundation for sustained economic growth and prosperity.

Mamo said the policy is in conformity with the government’s plan and other development policies highlighting its importance in realizing  the country prosperity by ensuring the benefit of the people.

The governor emphasized that the reform is a holistic approach encompassing revenue management, finance, and foreign exchange management. It is a crucial step towards addressing the persistent foreign exchange crisis.

By successfully implementing the next phase of the reform, the government aims to revitalize the economy and achieve a historic turning point.

The governor expressed confidence in the reform’s ability to stimulate economic growth, entrepreneurship, and job creation, citing the IMF’s projection of an average 8 percent GDP growth rate over the next four years.

Key benefits of the reform include enhanced revenue collection, increased foreign exchange reserves, improved export and investment climate, and greater economic equity.

The governor elaborated on the foreign exchange management reform, explaining the shift to a market-determined exchange rate to address issues such as the widening gap between official and parallel market rates.

The reform made on FX will bring healthy market by curbing illegal activities, encouraging export and investment.

He acknowledged the potential for market challenges but assured that the National Bank will intervene as needed to stabilize the market.

The governor emphasized that the foreign exchange rate policy change aligns with the government’s long-term development vision and is not driven by external pressures.

Ethiopia has secured substantial financial support from international lending institutions, recognizing the potential of the reform and the country’s economic prospects.

The governor highlighted the importance of macroeconomic adjustments for long-term national development and dismissed any opposition to the reforms.

He emphasized that the reform is crucial for attracting foreign investment and increasing foreign exchange inflows.

The financial institutions have provided Ethiopia with financial support and loan which is the highest in Africa by considering the country’s capacity of productivity.

The Governor revealed that IMF and World Bank have deposited 2.5 billion USD to the National Bank of Ethiopia on Thursday.