World Bank says Ethiopian currency overvalued

Ethiopia is losing its competitiveness on the international market because it has overvalued its currency, a new Word Bank report says.

“Ethiopia’s real exchange rate has been increased for the last two years while the rate for most of the neighbouring countries is stable.

“If Ethiopia is competing with these countries on the international market, then Ethiopia is losing the momentum,” said Mr Michael Geiger, the co-author of; The 5th Ethiopia Economic Update, on it’s launch on Tuesday.

The export

Devaluation of currency by 1 per cent will see an increase of manufacturing export by 1.6 per cent, according to the report.

“The real effective exchange rate continued to appreciate, which hurts the export performance,” said the report.

It further advised the Ethiopian government to take a lesson from China’s multiple monetary instruments applied between 1987 – 2006.

High inflation

The report noted that here were lessons to be learnt by Ethiopia as China’s situation at that time was almost similar to the Horn of Africa sate’s.

The Ethiopian authorities have argued that the currency devaluation would lead to high inflation, but the researcher said that because of the prevailing downturn in the global commodity price, the impact would be insignificant.

Inflation in Ethiopia was currently at around 6 per cent, from close to 12 per cent in October 2015.

Trade deficit

The World Bank report indicated that Ethiopia’s exports experienced their worst performance in the last decade and the current account balance remained large.

Latest export and import figures showed that Ethiopia’s trade deficit had surpassed $10 billion as the export income reduced to around $3 billion.

The report forecasted that because of the recent drought, Ethiopia’s GDP growth would slow down to 8 per cent this year and later rise 8.9 per cent.

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