Ethiopian Reporter - English Version - High inflation rate, current account deficit raise more concern

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High inflation rate, current account deficit raise more concern

Saturday, 21 June 2008

(Dr. Justin Yufi Lin, the first chief economist and senior vice president for the World Bank (WB) from a developing nation china)

By Hayal Alemayehu

The high inflation rate and the widening current account deficit the country has been going through lately has become much of a concern for both local, expatriates and world economist.

The latest addition to the list who voiced concern over the same issue is Dr. Justin Yufi Lin, the first chief economist and senior vice president for the World Bank (WB) from a developing nation, China.

Dr. Justin, who assumed the vice presidency as a chief economist at the WB this month, has expressed his concern at a press conference held here on Tuesday over the high inflation rate and the widening current account deficit the country has been experiencing over the last few years.

"Currently, the high inflation rate is certainly an issue of much concern," Dr. Justin told the press conference. "How to bring down the inflation to an acceptable level is the key issue because, with high inflation, you are going to leave people vulnerable even if they sweat hard."

He said that he was informed of the government's temporary intervention and efforts being made to help the people affected with the high inflation to cope with the problem. However, the chief economist said that the government needed to bring down the inflation rate to an acceptable level eventually. This has, however, unfortunately failed to materialize with especially food prices rising by the day, as the local market witnesses.

The current account deficit, which is incorporated in the declining balance of payment, is the other issue of concern Dr. Justin shares with other economists.

"The sharp increase in petroleum, chemical fertilizers and grain (commodity) prices had partly contributed to bringing about high pressure on your balance of payment," Dr. Justin says. But at the same time, import bills had been four times as high as export earnings during the last few years.

"This is a large current account deficit, and how to finance that deficit becomes a key issue," he added.

"Certainly there are external shocks as I have already mentioned. And the international donor communities try to come up with ways and means to address these external shocks and support Ethiopia to deal adequately with the sharp prices increases," Dr. Justin says. "However, the government fundamentally has to find means to reduce import and increase export. The government can, hopefully, introduce policy measures that can deal with this issue effectively, without affecting the growth momentum the country has passed through over the last few years."

Aside from his concerns over the inflation and the current account deficit, among others, Dr. Justin expressed hope concerning the growth trend of Ethiopia's economy.

"Although on a very small scale, some sectors, including horticulture, leather and shoe production, are going in the right direction in utilizing the competitive advantage the country enjoys, which includes minimal labour wages, ideal weather and land, among other resources," he said. "Utilizing these resources, these products are able to penetrate the European market."

"Although there are troubles and obstacles that need to be overcome and tackled, which I think is possible to be done with the right policy measures, Ethiopia is a land of hope," Dr. Justine said.

"Over the last four years, Ethiopia had achieved a remarkable growth rate of some 11 percent continuously," the chief economist said. "But there are still some people suffering from poverty which, I think, has got to do with the industrialization level in Ethiopia, which has failed to create enough employment in the countryside and the urban areas as well."

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