More than half of export earnings
(Capital Reports) Globalization and increasing migration has led to a dramatic increase in the amount of remittances to Ethiopia. This fiscal year showed an 87.6 percent surge from last year as over one billion dollars flowed into the country from abroad. In the 2009/10 fiscal year Ethiopians working in other countries contributed nearly 790 million dollars to the nation’s economy. That figure increased in the just concluded fiscal year to nearly 1.5 billion dollars.“Remittances are a prominent feature of most emerging countries.For most developing nations, including Ethiopia, private transfers are an important source of foreign exchange alongside goods and services.Ethiopian citizens and foreign nationals of Ethiopian origin living and working abroad have been transferring more and more money recently; almost 38 percent more every year for the past five years. Ethiopian Diaspora have forked over 1.48 billion dollars and increase of 87.6 percent from the 789.5 million they shot into the economy the previous fiscal year,” reads a written but officially unsigned response of the National Bank of Ethiopia (NBE) to Capital’s written queries forwarded to the financial sector regulator soon after the fiscal year ended.“The government took drastic measures last fiscal year to realign the exchange rate which had been eroded by high inflation during 2008 and 2009. The premium between the official and black market exchange rate, therefore, narrowed down to less than one percent. This encouraged the Diaspora community to send more money back home through official channels, particularly through banks,” reads the letter. The government of Ethiopia depreciated the purchasing power of the birr against a basket of major foreign currencies on average by 20 percent almost a year ago. “Money transfer agents such as Western Union, Money Gram, Money Express and the like have been encouraged to expand their service coverage across all regions of the country so that Ethiopian Diaspora can easily send money back home to their families and relatives,” adds the letter. Remittances have gone up dramatically when the international transfer policy was reformed and other regulations were changed to make it easier for money to flow into the country. The slow recovery and continued expansion of the global economy and the increasing number of Ethiopian Diaspora has contributed to the growth of individual transfers into Ethiopia over the past five years, the letter explains. Capital asked about the existing high amount of foreign reserve and the current, galloping, 39.2 percent inflation. “Even though the growth of money supply was not the primary cause of inflation last year, it exacerbated the problem. When the NBE has more foreign exchange there is more money supply in the reserve (base money). When the central bank conducts foreign exchange, it has to pay domestic currency in return. Doing this increases reserve money which ultimately translates to money supply because it multiplies. If money supply is already near target, the additional injection through foreign exchange reserve makes it become bloated. The relationship is not direct.”The World Bank (WB) disagrees, arguing that Ethiopia’s inflation comes mainly from an excess supply of money. The government has raked in 2.7 billion dollars from exports alone, this past fiscal year. This plus the remittances raises the total amount of foreign currency in to the country well over four billion dollars. Of course, there is also unaccounted foreign currency that comes in with visitors. “We are encouraged by the inflow of remittances into Ethiopia. This shows that the policy of the government has been effective. NBE will do more to encourage money transfers from abroad with policies and incentives based on research and examples of other countries with high remittance rates,” concludes the letter.
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