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On the Rising Inflation Rate in Ethiopia

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05/12/11

  10:48:18 am, by admin, 455 words  
Categories: Ethiopia, Seid Hassan

On the Rising Inflation Rate in Ethiopia

On the Rising Inflation Rate in Ethiopia

By Seid Hassan*

Seid HassanEven though many causes could be mentioned, the main culprits of the inflation rates in Ethiopia are supply shortages, excess money supply and devaluation. To make matters worse, the government imposed price caps, which in turn have made a substantial portion of consumer products to disappear from the market.

As I indicated before, inflation in Ethiopia would remain a perennial problem unless the government in power both acknowledges and takes measures to alleviate the supply shortages, tightens its expansionary monetary and fiscal policy, and refrains from manipulating the domestic currency (and, instead focuses on solving the real economic fundamentals and structural problems), while at the same time minimizing its heavy intervention in the “free” market.

Even though it is easy to identify both the causes and potential solutions of the rampant inflation, I am somewhat pessimistic about the government’s ability to resolve the crisis. The supply shortages are structural problems which have existed in the economy for too long and would require major policy changes which should include returning the land back to the tiller. As long as the government continues to play an increasing role in the economy, as the so-called Growth and Transformation Plan (GSP) is set out to do, it will continue to soak the economy with an excessive government expenditure and money supply. Several anecdotal evidences and several of the government’s current polices strongly indicate that excessive government spending will continue unabated. Some of these increased expenditures include, in addition to what the ominous GSP would demand (which is expected to dangerously soak the economy with excess money supply/expenditures), the government has now faced with additional expenditures on security and imported goods (in which case the devaluation and the price cap measures have made it worse than would be otherwise.)

According to Prime Minister Meles Zenawi, devaluing the birr by 20% was necessitated by previous rising inflation rates that had engulfed the country, which in turn has made the real exchange rate to appreciate. Unfortunately, and if the government’s objective continues to be a non-appreciating real exchange rate, both the current rising inflation rates and the previous unexpected devaluation of the birr may necessitate for another devaluation of the birr. Unfortunately, both the government’s pronouncements (which at times happen to be contradictory) of impending and continuous (but not massive) devaluation of the birr and the manner in which the previous devaluation measures were taken have set in motion further declines in the value of the birr (that is, increased inflation.) As I stated it in my 2008 write-up, we ought to buckle-up for the hard ride.

The writer is a professor of economics at Murray State University and can be reached at Seid.hassan@murraystate.edu

12 comments

Comment from: myipismaname [Visitor]
myipismaname

No one can comment because none of you understand inflation.

The only language ethiopians and eritreans understand is the language of war.

Shame.

05/12/11 @ 12:35
Comment from: ejole bishoftu [Visitor]
ejole bishoftu

@myipismaname

Shame on you for your stupid generalizations!off course to comment on inflation it requires knowledge of economics.But don’t say that no one is able to comment.There are many economists(Ethiopians/Eritreans)who are able to give good analysis on inflation.

May be people like you and me are not trained to be economists.

05/13/11 @ 03:13
Comment from: Zewditu [Visitor]
Zewditu

Good article as always Prof…

05/13/11 @ 06:47
Comment from: C'moi senait [Visitor]
C'moi senait

Since the ethiopia economy is run by dedeb weyannes and their Hoddams maffia, who controll all the market and export everything to west and arab countries and make profites , the so called todays inflation is MAN made inflation around MERKATO where 78% of ethiopia commedities end up for domestic and international trade. It is like a foot ball field with playets but NO Ball to play with. Or shall i put it in simple term .Eating injera without wete, how it sound?
You can controll the inflation in ethiopia if the weyannes STOP exporting berbery,suger, injera, teff, all the necessery basic items. The Hoddams are now creating this inflation becouse of a big demand of the above itiems in europe, arabs and northern america. They buy everything from poor farmers with cheap price and expote it and get paied with help of a so called ethiopia commodety exchange with huge profit.
The two economical terms do not go together.
Making profit by selling everything and waching the Childerns
starv to death. One has to feed his own childerens first no matter the big profit is to come. First thing is first.
STOP exporting of all necessery items like berbery, teff injera etc. For sex monthe, tha t will chill out the gready exporters to think and ethiopa firts. Forget about a big profit. Profit comes and goes!!!

05/13/11 @ 07:49
Comment from: Kombolcha [Visitor]
Kombolcha

May almight GOD bless Prof Almariam, Prof Seid Hassen, Dr Negede Gobeze, Dr Birhanu Nega, Dr Wondimu Mekonnen,Neamin Zeleke, Tamagne Beyene and other dedicated activists who kept speaking onbehalf of the voiceless in Ethiopia under the brutal regimme.

on the contrary We have been wittnessing people in the name of Jesus advocating dictators whose hands are immerssed with blood of innocent citizens in Ethiopia. These people used to say God bless Ethiopia at the end of their comment as if they belong to christians domination.

Before declaring your are christian come forward and condemn Woyanee and confess your sins ever since 1991.

Sheme on you woyane propagandist to disguise your true personality in the name of christianity.

God bless Ethiopia

05/13/11 @ 09:35
Comment from: Kena Keb [Visitor]
Kena Keb

When the Ethiopian Commodity Exchange(ECX)was founded by Dr Eleni G/Madhin, Seid Hassan condemned that projet and wrote an article entitled “The Dangerous Hype behind the Ethiopian Commodity Exchange” in which he said:
“"It is about time to recognize that millions of Ethiopians get hurt with such gimmickry and uncalled for hypes…Let it be known that the ECX is another well orchestrated gimmick, one of those government set up mega projects which are designed to control both the outputs and prices of the foreign exchange. Let it be known that , as the saying goes"all that gliters is not really gold"".
He continued writing “Let there be no more hyes, no more deceptions. Most importantly, it is time for those enablers of Meles’s greedy and kleptocratic regime that the creation of hypes real consequences. As a gimmickry mega project, the ECX has been and will be used to both squander the meager resources of the country and as means of controlling the outputs of the Ethipian peasants. Let it be known that those who are a part of this process, including those at the helm of the ECX will be acccountable for what they have done to Ethiopia and its people".
Outright condemnation of this magnitude lashed on the ECX then proved how wrong Seid Hassan was. Since its commencement, the ECX has executed its duties with success and perfection despite Seids bleak and extremely pesimistic predictions.
In numerous other articles he has continued to voice his unabated condemnations on the Ethiopian governments’s policies so this article is no different from what we have been reading from this individual. Along with other problems that pop up now and then in Ethiopia, the government has not sat finger crossed but is responsibly trying to solve them as they come. Grumpy individuals, whose motives we very clearly know, will continue to disapprove anything that comes out of our country regardless. The credibility of Seid Hassan that was disastrously shattered by the genius Dr Eleni G/Madhin has proved how vacous and devoid of any substantial points his arguments were and will continue to be.

Ethiopia shall prosper!!

05/13/11 @ 10:42
Comment from: Kena Keb (AKA) Seiko [Visitor]
Kena Keb (AKA) Seiko

Kena Keb (AKA) Seiko, you are in denial! Wake up before it is too late!

Learn from Fikesilase Wogderes and the others who were caught after it was too late.

Prepare for your diaspora life because your life in Ethiopia will either be lethal or a grueling vegetation in Kaliti.

05/13/11 @ 15:42
Comment from: Uzawa [Visitor]
Uzawa

It is sad that Ethiopians will have to live with this. The government does not have an incentive to reduce inflation in the country. In fact, although it may look odd to unsuspecting readers, all indications in Ethiopia at the moment are that the government benefits from inflation. Why am I saying this? Think of the things inflation does. Chief among them is to distribute income from lenders (depositors, etc) to borrowers. Interest is usually set in nominal terms, and an increasing inflation means that the real interest rate is negative, which means that resource (in real terms) is being transferred from lenders to borrowers. Now, see who are the borrowers and lenders in Ethiopia. Government itself is the main borrower (remember those crap bonds?), hence it benefits directly from inflation. Oh….what about the party companies, like Guna, EFFORT etc? They are believed to be the major borrowers in Ethiopia, perhaps next to government. And then comes those TPLF cronies, the unproductive entrepreneurs. These are also other major borrowers in Ethiopia, and the government needs to reward them too and the best way is to make the real interest rate negative.

I feel so sad for the poor Ethiopians.

Uzawa

05/13/11 @ 20:00
Comment from: Addissew [Visitor]
Addissew

The professor has the right observation. The question is whether the Birr is over valued or if it is the right thing to devaluate it in this time of hyperinflation. I believe it has been over-valued for a long time probably for more than 60-70 years. It was just valued for much ado for nothing. I would not see the Birr any worth less than 33-35 to a US Dollar. I say this not because I sympathize with this goon from Dedebit but it is something that needs to be done fiscally by even a democratic government. There are many commodities that can be manufactured both in quantities and qualities back there but they have to be offered at competitive price in the global market. Labor including skilled ones are cheap and it has many of the natural resources needed for growth. It just needs the right leadership with broad perspectives not this narrow megalomaniac narrow nationalistic agenda to wade through the current crises. The political affair is in a stalemate and inflation is blasting through the society like a run away train. And the goon from Adwa has his tongue stuck in that old time Envar Hoxha and Mao’s spiritual - New Democratic Revolution. All his talk about the failure or shortcomings of ‘liberal’ capitalism shows that the evil spirit that possessed him and his cabals more than 35 years ago still owns him. That is why he is building an 82 million birr mansion in this time of a 35% inflation. He is telling the suffering people – ‘In your face!!!’.

But it is my conviction that the Birr is way over valued. I think a lot can be formulated and presented to support me.

05/13/11 @ 23:59
Comment from: JonesHenry [Visitor]
JonesHenry

Meles will drive your country into the ground! Gods righteous punishment for all your sins!

05/14/11 @ 07:23
Comment from: Kena Keb [Visitor]
Kena Keb

@Kena Keb(AKA)Seiko

From Kena Keb(AKA)Seiko to Kena Keb(AKA)Seiko??
Have you noticed that your comment was adressed from yourself to yourself? Well done! It is you who need to wake up!
Would it be helpful for you to use another pen name to avoid confusing yourself and others? Like Seid Hassan who you have defended in your comment adressed to me, symptoms of confusion are vividly acting upon you.

Ethiopia shall prosper!!

05/15/11 @ 02:21
Comment from: Nahmii [Visitor]
Nahmii

Bless ya!!! prof!!! u rt!!.

05/17/11 @ 09:25

rebtel

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