COVID-19: Ethiopia announces sweeping measures to support economy

Ethiopia has recently announced a series of sweeping economic measures aimed at supporting the economy in the wake of the COVID-19 pandemic. These reforms, which were unveiled by the Prime Minister last week, are designed to stimulate economic growth and alleviate the financial strain facing businesses and individuals across the country. In a recent interview with CNBC Africa, Zemedeneh Negatu, Global Chairman of the Fairfax Africa Fund, discussed the key components of these reforms and their potential impact on the Ethiopian economy. One of the primary focuses of the government's six-point plan is to inject liquidity into the banking sector. This infusion of funds is intended to enable banks to provide debt relief to companies struggling with the effects of the coronavirus crisis. Similar measures have been taken in the United States, where trillions of dollars have been allocated to support liquidity and debt rollovers. In Ethiopia, this liquidity injection amounts to nearly $500 million, equivalent to $15 billion Ethiopian birr. Another key aspect of the economic reforms is the expedited refunding of value-added tax (VAT). This measure aims to improve the cash flow of businesses by ensuring quicker processing of VAT refunds. Additionally, the government has moved to support key sectors such as the flower industry, a major export for the country. To address the challenges faced by exporters, the central bank has eliminated the floor price previously imposed on exports, allowing greater flexibility in pricing. This change is crucial as global markets struggle with disruptions in trade and demand. In response to concerns about price-gouging and inflation, the Ministry of Trade is set to enforce measures to prevent excessive price increases, particularly for essential goods. This proactive approach is aimed at protecting low-income households from economic exploitation during the crisis. Furthermore, the government is providing tax exemptions for imported materials used in the production of COVID-19-related goods. This initiative is expected to incentivize local manufacturing of essential supplies and support the healthcare sector in combating the pandemic. While these measures are critical for Ethiopia's economic stability, external support will also be essential in mitigating the impact of COVID-19. As part of a broader African initiative, Ethiopia has joined other countries in calling for financial assistance from global institutions such as the World Bank and the IMF. The proposed $150 billion relief package for Africa includes debt relief, debt rescheduling, and increased liquidity to support struggling economies. Negatu emphasizes the need for coordinated international efforts to address the economic challenges posed by the pandemic. In analyzing Ethiopia's response, he highlights the importance of ensuring that the liquidity provided by the central bank reaches businesses and individuals in need. Several commercial banks in the country have already begun reducing interest rates and fees in response to the government's stimulus efforts. This proactive response from the banking sector bodes well for the effective implementation of the economic reforms and the overall recovery of the economy. As Ethiopia navigates the complexities of the COVID-19 crisis, collaboration between the public and private sectors will be crucial in safeguarding the country's financial well-being. By focusing on key sectors, enforcing price regulations, and providing incentives for local production, Ethiopia is taking decisive steps to mitigate the economic impact of the pandemic and pave the way for sustained growth in the future.