Experts see no further policy-induced devaluation for some time to come
By TAMRAT G. GIORGIS
The value of the Birr against the dollar has become further devalued by five per cent, after Ethiopia's macro-economic team chaired by Prime Minister Meles Zenawi made the decision on Friday, January 30, 2009.
Banks in the country were told by the central bank on Saturday morning to exchange a dollar for 13.57 Br.
Central bank Governor, Teklewold Atnafu, is a member of the macro economic team; others include Girma Birru, minister of Trade and Industry (MoTI); Sufian Ahmed, minister of Finance and Economic Development (MoFED); and Neway-Chab Gebreab, senior macro-economic advisor to the Prime Minister.
This is the fourth macro-economic policy intervention in devaluating the Birr against the dollar since October 2008. The value of the Birr has depreciated by 30pc during this period; the largest jump was back in July 2009, when the team decided to devalue the Birr by 15pc.
The latest rate of devaluation is similar to the first policy move taken back in October 2008. A total of 10pc depreciation was observed in a period of one week.
Policymakers believe that the series of devaluations of the Birr has helped the export sector to remain competitive. But, there were policy advisors within and outside of the government who have been pushing for further but "modest" devaluations, for they believed the Birr remained "overvalued" to help the nation meet its export revenues target for the fiscal year.
"Ours is modest compared to our competitors," a macro-economic policy advisor told Fortune.
He compares the series of devaluation in Ethiopia to Kenya, a neighbouring but competing nation in the export market which devalued its currency by 45pc over the past one year.
The federal government was hoping to earn close to three billion dollars from export in 2009/10. This target has proven to be illusive. The performance for the first two quarters of the fiscal year has been registered at 709.6 million dollars, against what was planned which was 1.19 billion dollars. Only the export of Khat has met the plan, surpassing the 90 million dollars target for the half year by seven million dollars.
This has put pressure on the balance of payments, according to macro-economic experts. Thus last week's policy-induced devaluation is an attempt to ensure the stability of balance of payments.
"I believe they have gone enough in their macro-economic policy move," said a macro-economic analyst. "I don't think there will be anymore policy-induced measure for some time to come."
This is a view shared by the market.
It is unlikely that the government will make any further drastic and unexpected devaluation, a senior private bank executive told Fortune. But he sees that the government leaves it to the competitive bidding market among the banks.
"It seems they are satisfied with the results of the measures they have taken so far," the senior bank executive told Fortune.