Ethiopia’s central bank governor, Mamo Mihretu, has described the recent decision to float the birr on the open market as a potentially transformative step for the nation’s economy. The policy change, implemented in late July, moves away from a fixed exchange rate and is expected to attract foreign investment. The move has already yielded dividends as it has enabled Ethiopia to secure loans from the International Monetary Fund and the World Bank. Unfortunately, the currency float has resulted in high inflation, which has had an adverse effect on low-income households. To mitigate this impact, the government is temporarily subsidizing essential imports like fuel and medicine. Despite concerns about inflation, Mihretu emphasized that Ethiopia’s restrictive monetary policies differentiate it from other African nations that have faced challenges following similar reforms. Finally, he compared the reform’s potential impact to the economic transformations seen in emerging markets, like India, which liberalized their economies.
SOURCE: SEMAFOR
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