Government criticized over ambitious inflation reduction target

The Ethiopian federal government has come under scrutiny from members of the House of Representatives following its assertion that it will reduce inflation from its current rate of 27.4% to 12% in the next 2024/25 fiscal year.

Finance Minister Ahmed Shide, while presenting the 2024/25 Budget Statement to the House of People’s Representatives, acknowledged that while there is a slowing trend in the overall price growth of consumer goods and services in the current fiscal year, inflation is expected to remain in double digits for some time. He outlined the government’s plan to implement monetary and fiscal policy measures aimed at significantly lowering the inflation rate to 12% in the next fiscal year.

However, this optimistic projection was met with skepticism by members of the House. One representative questioned the feasibility of such a drastic reduction, asking, “What kind of methods can we use to bring the price down to 12% from the current level?” The representative also criticized the Ministry of Finance for presenting similar ambitious targets in the past, which have not been achieved. Last year, the government aimed to reduce inflation from 36% to 15%, a target that was not met, leading to doubts about the current plan’s credibility.

In response, Minister Ahmed explained that the government has introduced several measures, including a monetary policy credit cap through the National Bank and a reduction in Direct Advance lending to the private sector. He also mentioned that efforts are being made to reduce jobs in agriculture and tourism sectors as part of the strategy to control inflation.

Despite these measures, Ahmed admitted that the government has struggled to bring inflation down to the desired levels. He cited long-standing supply constraints, limited foreign exchange availability, sharp increases in global commodity prices, including oil, and disruptions along the Red Sea trade corridor as significant challenges. The minister emphasized that these structural issues, many of which are beyond the government’s control, make it difficult to curb inflation quickly.

The criticism highlights the ongoing economic challenges Ethiopia faces as it grapples with high inflation rates. The government’s ambitious target to reduce inflation to 12% by next year is seen by many as overly optimistic, given the persistent structural problems and external economic pressures. As the government continues to implement monetary and fiscal policies, it remains to be seen whether these efforts will be sufficient to achieve the projected reduction in inflation and improve living conditions for Ethiopians.

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