Gov’t expects $500 mln from IMF as direct budget support
$725 mln fresh supplementary budget from the World Bank
The government announced that it has finalized a negotiation with the International Monetary Fund (IMF) to get close to half a billion dollar emergency finance facility (EFF) to fill the budget gap that will occur by the COVID 19 effect in the economy besides USD 725 million fresh supplementary budget support from the World Bank.
Early this week the ministerial committee to tackle the coronavirus has given a response to questions collected from media houses and journalists.
In his response Ahmed Shide, Chair of Economic Affairs Subcommittee and Minister of Finance, said that the government is undertaking several measures to mitigate the effect of the outbreak that massively affects the global economy.
He said Ethiopia’s economy will be affected in two ways; in the local business and the foreign trade. He reminded that there is a significant reduction of flower, textile and garment export that is almost nil, while the export of some other commodities like coffee is going in a good manner.
He added that the country’s foreign currency earnings from remittance have actually dropped because the diaspora is also economically affected because of the virus.
He indicated that there is a tendency that the government revenue is reducing because the slowdown of the economic activity.
He indicated that the approaches on tax support and rescheduling VAT settlement will be disclosed by the government.
“We have been working to identify the sectors that will be significantly affected by the pandemic,” he said.
He hinted that the government mitigation plan will be applied at a time but will take a gradual process as per the behavior of the effect to mitigate the challenge that the country economy faces.
For instance he said that the way out on the tax support and rescheduling the VAT payment has already been tabled for the government and will be disclosed recently.
He said that 4.5 billion birr will be available via NBE and DBE for SME, micro finance, cooperatives to ease the impact from the virus.
“The government’s holistic approaches will be applied,” Ahmed said.
Regarding getting reliefs from international partners and countires the government is strongly working, according to Gedu Andargachew, Minister of Foreign Affairs. He said the government is working to get debt cancelation and settlement extension that is crucial to bypass the challenge that the country faces due to the slowdown of the economy.
“Ethiopia is at the front on the diplomatic arena to get solution for poor countries besides itself,” Gedu said. “Countries should collaborate with each other to alleviate the impact of the virus; otherwise any country could not tackle the current challenge independently,” Ethiopia’s top diplomat said.
Ahmed said that to mitigate the hard currency shortage the government is working to mobilize foreign currency from international sources since the export earnings will not run as per the projection.
Mobilizing the finance from external sources will be seen in two ways. The first is getting general support for the economy that might be a budget support and hard currency earnings, according to the Economic Affairs Chair.
In this regard he said that the negotiation with the IMF to get USD 425 million emergency finance facility (EFF) was finalized and will be disbursed in the near future.
From the stated amount USD 415 million shall be is direct budget support and hard currency earnings for the country that is the balance of payment support for NBE and budget support for Ministry of Finance.
The negotiation with the World Bank is ongoing to get additional USD 725 million supplementary budget.
Recently the World Bank provided the second round of USD 500 million supplementary budget support for the Home Grown Economic Program. The fresh amount will support the initiative under the program.
In general the government is working to mobilize USD 2.15 billion for sectoral, budget and other areas support.
“These will improve the foreign currency earnings of the country and will help the demand of foreign currency for the private sector,” Ahmed added.
He indicated that the government may take several policy measures like possible tax exemption for wage income tax for industry parks and reschedule regular utility fees.
Banks asked to cut loan interest rate by half
The private sector is raising concerns that just rescheduling loan settlement will not have a positive effect for the endangered economic condition because of COVID 19.
Some of the business people Capital spoke stated that financial institutions should consider the cut up to half of the loan interest rate at least for three months to keep the health of the private sector.
They said that it is common that banks rescheduled loan settlement framework for their clients, not only on this bad time.
“It is one good decision that some of the banks rescheduling the loan settlement period,” they said.
But they added, “we are highly suffering on the situation that the country faces that we are also looking for loan interest minimization to pass this situation.”
They claimed that big businesses are already approaching for a huge crisis because their business is highly affected.
“We are expecting from banks to cut the loan interest by half for this coming three months,” one of the business elites, who runs several big investment and businesses, told Capital.
He said that it would be difficult for banks to cut all interests since they have also huge costs, but they have to consider easing the rate that they are now calculating on the loan.
Business elites recommended that now is the time to help each other and save the country. “We are paying wages without active business environment and provide support for those in need that might be directly related with the effect of the COVID 19. At the same time banks should play their role to contribute to calm the situation and support the post coronavirus economic shock,” they said.
Two weeks ago during their virtual meeting bankers request the National Bank of Ethiopia (NBE), to relax the loan rules to mitigate the economic effect that they face in relation with the outbreak of COVID-19.
Yinager Desie, Governor of NBE, told bankers that they have to consider slashing their interest rate.
“Banks should look their interest rate for loans that have its own role for aggravating the inflation in the market,” he said but it was not clear that his address is directly related with the current case or general recommendation.
Since the government decided to lift the 27 percent NBE bill that banks were expected to buy from their every fresh loan approval, banks minimized their interest rates on some credit facilities, however, the country’s loan interest rate is one of the highest.
Currently banks are providing several schemes to play their part to mitigate the adverse effect of COVID 19 besides direct donation for the fund mobilization committee of the government.
Economic experts supported the idea of the reduction of interest rate besides rescheduling the loan settlement. “Companies fixed cost is not reduced, while their usual operation has dropped. Due to that financial institutions should halt some of the interest rates for their customers,” they said.
Coronavirus has significantly affects the economic condition of the country like any other country who reported the global pandemic in their home country. The situation does not only affect the home country trade but the international business like export.
According to the recent policy working paper of the Ethiopian Economics Association the service and manufacturing sector would be highly affected by the outbreak of the virus than the agriculture, which is mainly carried out on household small scale level.
WHITE SWANS & WHITE ELEPHANTS
About a decade ago the idea of encountering a ‘black swan’ was again brought to mainstream discourse by Nassim Nicholas Taleb’s bestseller, the ‘Black Swan’. This time around however, the black swan notion was employed to illuminate unexpected scenarios that can come about from within or from without the human collective. Taleb used an analogy from the old zoologists of the 18th century. At the time, the fixation within the community of ornithologist was; ‘all swans are white’! The intent of Taleb’s ‘Black Swan’s’ was to shake up established routines. As a player in the securities market, his interests were mostly focused on such matters as; survivorship bias, blindness to randomness, fat tails etc.!
Most of the strategies currently employed in the financial markets have innate pitfalls. They have tendencies to follow what others are doing, the ‘herd mentality’. In addition, these models rely on abstruse mathematical derivations with dubious results/values. To start with, mathematics cannot really be trusted in the feeble world of humanity. Yet, econometrics insists that it is better positioned to understand what is going on in the real world of exchanges; commodity, financial, labor, etc. We beg to differ! To those who are befuddled with this, we suggest listening to those who actually know what they are talking about. ‘As far as the laws of mathematics refer to reality, they are not certain; as far as they are certain they do not refer to reality’ Albert Einstein. The shortcoming of economics is not limited to the excessive utilization analytical methods and brute quantification. On this point Taleb has something to add. ‘Taleb has called for cancellation of the Nobel Prize in Economics, saying that the damage from economic theories can be devastating. He opposes top-down knowledge as an academic illusion.’ To be sure, Alfred Nobel did not bestow a Prize for economics. It was the Bank of Sweden in 1968, who took it on its own, to concoct an annual prize in economics, bearing the name ‘Nobel’. What bankers do to look respectable!
One must clarify the ‘Black Swan’ animal before the establishment completely abuses it, like the above story of ‘Economics Nobel’. For example, the current Covid-19 pandemic is not a black swan event according to Taleb. This is because it has been anticipated by many long before its actual occurrence. Just because the MSM (Main Stream Media) and establishment pundits are not interested in issues, it doesn’t mean things have not been studied or anticipated. For instance, there are plenty of Yemeni children who are currently dying because of the ongoing war of aggression. Yet, the MSM is not interested in covering such cases, while fully engaged in massive propaganda campaigns about all and sundry! There are plenty of laboratories in the world that are fully engaged in the research and production of bio-weaponry. They employ thousands of scientists whose main occupation is to come up with man-made pestilences/WMD. Almost all of these pestilences are intended to do considerable damage to some (ethnic specific) or even all of the human species! So if an incident involving a bioweapon happens, either by accident or by design, can one honestly claim it to be a black swan event? To those familiar with the workings of the existing world order, projects of these nature are a dime a dozen. The new nuclear weapons program of the USA, reinvigorated by the Nobel Peace Prize winning president, Barack Obama, is a case in point. Incidentally and like many other international treaties, the USA has also withdrawn from the bioweapon treaty, which it signed in 1972. Humanity cannot remain naïve to the potential consequences of such ongoing evil projects.
In the business world, white elephants are defined as those capital wasting useless investments or mal-investments. We cite some examples from the real estate industry. There are about 90 million vacant housing units in China all brand new and still waiting for occupancy, in a country that is now undergoing depopulation! There are many brand new ‘ghost cities’ in China that await massive residents who will be eager to engage in the business of family formation. There are about 30 million residential units unused in the USA. Even though many such properties in the world do not earn incomes commensurate with their asset prices or even their initial investment costs, they continue to significantly appreciate in value, albeit vacantly. If these assets are seriously devalued, there might be a top down revolution, this time to be led, paradoxically (don’t laugh) by the upper classes (asset owning classes) of the world system! Even the African cities (Nairobi, etc.,) are full of such white elephants; after all, we Africans do not make our own policies, but only follow, rather blindly, what is ordered by the masters of the world system!
White elephants can easily give rise to white swans, trivially. For example, there is now an impending catastrophe of sand shortage all over the world. It is already studied and is sufficiently anticipated. Can the climax of this disaster be labeled a black swan event? There are plenty of other mal-investments on the planet, primarily caused by the global fiat currency system. The overextended industry of travel and tourism, which is now the largest industry in the world, has become an epitome of mal-investment. From Miami Beach to Mombasa Beach the number of white elephants (hotels, condos, guest houses, airbnb, etc.) are so mindboggling, one might be forced to doze into the world of pink elephants! Since investment capital can be had for a whistle in a fiat system (so long as one is connected), every Tom, Tori and Tinny can become a respected investor, by the measure of crony capitalism, compliment of the bankster-cum-state cabals. The built-in inflation of the global system discourages savings and keeps the sheeple (human mass) pedaling on a fixed bicycle or running on a conveyor belt of real estate investment. What the ongoing depression will bring to inflated asset prices (everything bubble; such as the global real estate, securities, etc.), is something that remains to be seen. ‘By a continuing process of inflation, the governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.’ John Maynard Keynes. Good Day!
