What economists say on devaluation of birr currency?

Addis Ababa, October 11, 2017 (FBC) –The National Bank of Ethiopia (NBE) devalued birr currency by 15 percent as of today, October 11, 2017, to increase earnings from the export sector.

Economists whom FBC had interviewed yesterday are in favor of the move stating that the measure is important to encourage exports and obtain foreign currency enough to import commodities from abroad.

However, they recommend the government to properly handle and impose price control measure to prevent the inflation that could come about as a result of the devaluation.     

Tasew Woldehana, Professor of Economics at the Addis Ababa University, and Dr Costantinos Berhe, who is also an Economist, agree that the devaluation of the birr currency encourages exporters in Ethiopia.

When asked if the devaluation could be a challenge to import investment equipment, Dr Yohannes Ayalew, Vice Governor of NBE, said its impact is insignificant as the benefits from investment is more compared to the spending.

Responding to question regarding the impact of the devaluation on the implementation of government's maga projects, the Vice Governor said the impact is incomparable than their benefits, and therefore, the projects will continue as per their plan.

The two economists advised the government to get ready to handle the inflation that could happen following the devaluation move.

Dr Costantinos said in addition to imposing a minimum price control, the government should manage those businesses that could make high price increase on commodities.

He further said the government need to stabilize the market by supplying commodities to the market and strengthening trading enterprises, such as “Alle Bejimla.”

The inflation which could happen following the devaluation could not affect the economy as it is temporary, both economists said.  Dr Yohannes also shares their ideas.

In addition to boosting export earnings, the adjustment made on the exchange rate would help the country obtain foreign currency enough to import commodities from abroad, Professor Tasew said.

He said devaluation of local currency to boost export earnings is not a new phenomenon. China and Meddle East Countries did the same to increase their export earnings and competitiveness.

Ethiopia’s move to devalue its currency will yield similar results and weaken the black market, Professor Tasew added.

By Mekoya Hailemariam