Notes on the Prime Minster’s Report

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The bulk of prime Minster’s report to parliament concerned issue of inflation in the Ethiopian economy. The prime Minster noted that inflation in Ethiopia is linked with global inflationary trend namely the increase in the price of oil and grains due to higher consumption in fast growing economies like China and India. The increase in the price of cement and construction materials was also attributed to higher consumption in economies like china. Locally the Prime Minster pointed to an increase in money supply, growth in the construction sector along with hording and price gouging by illegal speculators. He cited as example traders who conspired and raised salt prices in one day from one Birr to ten Birr per kilo.

Prime Minster announced that the government would lift sales taxes on grains and also the government would establish an anti price-gouging task force. He also affirmed the government’s willingness to continue oil subsidies and limited wheat subsidies. Over the long term the Prime Minster indicated that increasing the production capacity of Ethiopian agriculture along with the modernizing of commodity trading as solutions for inflation. He concluded by noting that Ethiopia will have a growth rate of 10.8 for the year, which his government has achieved for five consecutive years as a strong indication of a sound economy.
I believe that the greater part of the Prime Minster’s summary of economic conditions in Ethiopia are accurate, however Mr. Meles fails to fundamentally illustrate how with only 1.2 Billion US dollars in the export industry Ethiopian can be affected by rising commodity prices globally. Rising oil price does affect the Ethiopian economy however the government as stated by Mr. Meles has been subsidizing oil imports with more than a billion dollars annually. The growth in Ethiopia’s export sector is centered on cash crops such as coffee and oil seeds; hence it is difficult to discern how rising commodities prices especially in grains internationally can effects the Ethiopian economy. Another unclear element in the inflation saga is the role of food aid. Since the mid eighties Ethiopia has been a recipient of large amounts of food aid which had played a big role in saving lives but also can be blamed with low grain prices in the past. As international agencies have shifted away from importing food aid into Ethiopia to local grain purchases the effect on the price of grain seems inevitable. The World food Program has stated that the Ethiopian government has asked for a temporary suspension of local grain purchasing by WFB, is this an indication that the government sees a link between food aid and grain prices in Ethiopia?

Another important element left unexplained by Mr. Meles is a question raised by Mr. Demeksa. Mr. Demeksa asked if population growth could take some blame for high inflation. If as Mr. Meles concludes that agriculture is growing rapidly and that fundamental change is occurring in the rural economy which is transforming it from a subsistence to market lead, it seems to suggest that the economy should be producing a large surplus, however if this surplus is not apparent in the market place one can conclude either population growth is outstripping production growth or that there still remains a market disconnect between the rural and urban economy.

Some members of parliament also questioned the Monetary and budgetary policies of Mr. Meles’s government. Although Mr. Meles defended the government monetary policy as sound, he neglected to elaborate on the possible effects of the government’s huge expenditure on infrastructure. The government’s rapid investment in infrastructure coupled with expanding private investment might also be culprits in the countries inflation woes. I hope the Prime Minster gives a more in-depth analysis of Ethiopia economic out look and especially the causes for inflation soon.

Dawit Belay, seattle

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