Despite the significant economic challenges Ethiopia has recently faced, the country has the potential to overcome these hurdles. The incumbent government, which took office in March 2018, has made commendable efforts to address the inherited macroeconomic imbalances. However, certain policy decisions, particularly those influenced by International Monetary Fund (IMF) prescriptions, have inadvertently exacerbated the situation. It’s important to remember that Ethiopia is not defined by its challenges but by its potential to overcome its challenges.

Ethiopia’s state-owned enterprises (SOEs) are not just a problem but a beacon of potential. They can play a pivotal role in driving economic growth and social development. However, their persistent inefficiencies have hindered the nation’s progress. These inefficiencies, rooted in weak corporate governance, political interference, and a lack of capacity, have led to significant financial losses, distorted markets, and stifled innovation.

Balancing Growth with Equity

Ethiopia’s recent announcement of a 10% quarterly electricity tariff adjustment is a significant step towards ensuring the sustainability of its power sector. This move, aimed at bridging the revenue gap and funding expansion projects, has the potential to bring about positive changes. However, it’s crucial to address the potential negative impacts on low-income citizens and small businesses to ensure a balanced outcome.

A Dangerous Gamble for Horn of Africa Stability

U’s decision to include Egypt in the African Union (AU) Peace and Security Council to include Egypt as a contributing country to the AU Support and Stabilization Mission in Somalia (AUSSOM), given the current tensions in the Horn of Africa, is a risky gamble. The region is already on edge due to the Ethiopia due to the Grand Ethiopian Renaissance Dam (GERD) dispute, Ethiopia’s agreement with Somaliland, and Somalia’s growing forcefulness. Egypt’s involvement could further escalate these tensions and destabilise the entire region.

Ethiopia’s recent decision to float its currency has sent shockwaves through the economy, underscoring the complexities of such a policy shift. While intended to foster a market-oriented system, the move has precipitated rapid currency depreciation, leading to heightened inflation and economic uncertainty.

The immediate impact on businesses has been profound. Exporters, once basking in the glow of a depreciated currency, now confront a myriad of challenges. Input costs have surged. Moreover, the instability of the exchange rate has made planning a daunting task.

On July 9, 2024, the National Bank of Ethiopia (NBE) unveiled a transformative monetary policy framework, marking a pivotal shift in the nation’s economic management and strategic financial planning. This framework aims to modernize Ethiopia’s monetary policy, enhance price stability, and align with international central banking best practices.

The cornerstone of this new framework is the transition to an interest-rate-based regime. The NBE will use the National Bank Rate (NBR), initially set at 15%, as the primary tool to signal its policy stance and influence broader monetary and credit conditions. This shift enhances transparency and predictability in monetary policy, aligning Ethiopia more closely with modern central banking practices.

Singapore’s Growth Model Lessons for Ethiopia

Ethiopia’s recent delegation to Singapore has ignited national discussions about the potential for our nation to replicate the Southeast Asian nation’s economic success. While inspiration is crucial, genuine development hinges on a fundamental principle: robust national unity. Here’s how Singapore’s journey offers valuable lessons for Ethiopia’s industrialization and stability, but national unity remains the cornerstone.

The recent findings of the National Bank of Ethiopia (NBE) Financial Stability Report have brought to light a significant trend: the ten largest borrowers hold a substantial portion, 23.5%, of the banking industry’s total loans and advances. This concentration of credit, while potentially beneficial, also poses substantial risks to the stability and health of Ethiopia’s financial system.

The Ethiopian Journey Towards a Truly Inclusive Economy

Over the past few decades, Ethiopia has embarked on a commendable journey towards creating a more inclusive economy. One noteworthy policy initiative has been the introduction of interest-free banking, initially offered through windows within conventional banks and later evolving into full-fledged institutions in 2020. This move has had a significant impact on the vast unbanked Muslim population in Ethiopia, fostering financial inclusion and empowering citizens who were previously excluded from the formal financial system. The impact extends far beyond the economic sphere, playing a crucial role in social empowerment and paving the way for a more equitable society.

The 2018 political shift in Ethiopia initially sparked optimism for the advancement of women’s rights. Under Prime Minister Abiy Ahmed, the Ethiopian government implemented reforms that garnered global attention. Women’s representation in leadership saw a dramatic increase, with half of the ministerial positions being filled by women and women taking the helm of the presidency, the Supreme Court, and the national election board. These reforms extended to regional and local levels, fostering hope of a genuinely inclusive future for Ethiopian women.