April 01, 2012
Ethiopians abroad send home millions more in the first half of the fiscal year as remittances surge outperforming revenues from the country’s exports, says the National Bank of Ethiopia (NBE).
Poor export income means the country’s already ailing trade balance is worsening as growth of imports, on top of hyper inflation, outpace exports’ small growth, further burdening the economy.
The National Bank Governor Teklewold Atnafu reported to parliament on Thursday that private transfers remitted 1.74 billion dollars during the first seven months of the current fiscal year which embarked on July 8, 2011. The income represents a 19.6 percent increase from last year’s same period.
Exports did grow, about 20 percent, to bring in 1.6 billion dollars during the seven months. This however was well below targets, and about 140 million dollars less than remittance revenues that have flown in through legal transfers.
According to the NBE report submitted to lawmakers, import has grown by 27.6 percent outpacing exports that only grew 20.1 percent. This means about six billion dollars were spent for various commodities shipped into the country. The trade imbalance that existed for decades has further widened during the budget year so far, the report reveals.
“In general during the current 2011/12 budget year’s first seven months, the growth of imports has been larger than exports. Thus the trade balance gap reached 4.5 billion dollars compared to last year’s similar period figure of 3.4 billion dollars,” explained the governor in his report.
By February, the country’s foreign currency reserve stands being able to cover 2.7 months of imports.
Remittance surge itself is not all good news, especially during a hyper inflated period which the country is suffering from. Experts say remittances could pressure money supply.
“To put it in the simplest form, by taking the dollars sent from abroad NBE in effect is releasing birr to the local market. As remittances grow so will the money supply which unless mitigated by other policy measurers could further exacerbate the cost of living,” said one expert.
The National Bank Governor told MPs that NBE has employed various measures to curb inflation; including selling 42.3 billion birr worth of treasury bills during the seven month period. The money taken in through the bills’ sales represents, about a 43 percent growth from last year’s same period as authorities look to collect more birr out of the market in a bid to sustain gains to slow the soaring cost of living.
Teklewold, while admitting inflation is still rampant touts five continuous months of slowing prices.
The country’s annual inflation during February however soared to 36.3 percent, up from 32 percent in January and reversing the latest trend of decelerating prices that also led Prime Minister Meles Zenawi to predict inflation would slow to single digits by July.
The escalation in prices during February was mainly driven by surging costs of food items. Food prices that consume up to 60 percent of an average family’s income soared by 47.4 percent in February, up from 41.4 percent a month earlier.
Non food items also accelerated to 21.4 percent, a rise from January’s 19.2 percent.
PM Meles’ government so far remains unsuccessful in holding inflation to single digits, if possible at four percent, as set by the five year Growth and Transformation Plan (GTP).
Though disputed by the Ethiopian government which says it is registering double digit economic growth, The International Monetary Fund (IMF) says inflation is slowing the country’s economy. The IMF says Ethiopia in the current 2011/12 fiscal year will register six percent growth, as opposed to 11.2 percent forecast by the government.
“Ethiopia still faces significant challenges in particular containing the still-high inflation, raising savings and meeting enormous investment needs,” says Naoyuki Shinohara, the IMF Deputy Managing Director, who recently paid a visit to Ethiopia.
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