Ethiopia says devaluation has narrowed trade gap

Sun Mar 13, 2011 9:22am GMT
 

* PM says exports have grown faster than imports

* Says will flood market with scarce commodities

* Analysts say inflation likely to rise in 2011

By Aaron Maasho

ADDIS ABABA, March 13 (Reuters) - Ethiopia's currency devaluation boosted exports in the past six months and helped narrow the burgeoning trade gap, Prime Minister Meles Zenawi said.

The Ethiopian birr ETB= was devalued by 16.7 percent in September last year to bolster competitiveness, the fourth such move since 2009.

Ethiopia's export revenue reached $1.11 billion during the first half of this year, while first-quarter revenue rose 64 percent from a year earlier, according to the trade ministry.

The Horn of Africa nation recorded a trade deficit of some $5 billion last year.

Meles said imports in the last six months have increased 30 percent, compared to exports during the period.

"The fact that exports are growing faster than imports is precisely what the devaluation programme was intended to achieve," he told journalists late on Saturday.

"On balance, we are comfortable with the trade figures. We have done better than planned in the export sector that among other things is reflected in the (increased) foreign exchange reserves," Meles added.

Ethiopia is Africa's biggest coffee exporter and the world's fourth-largest exporter of sesame.

Analysts have expressed concern that the devaluation may risk importing inflation.

Ethiopia's annual inflation jumped to 17.7 percent in January, helped by rising food prices, which rose 13.6 percent from a year earlier.

Authorities in Addis Ababa have blamed the price hikes on retailers who artificially inflated prices on the back of global increases and the devaluation, though such factors had had no influence on the availability of their products.

The nation imposed price ceilings earlier in January on some 20 commodities, including rice and sugar, in an attempt to ease inflationary pressures.

Meles said his administration would address shortages in items, such as sugar and edible oil, which have been dropped from the shelves of many outlets.

"We intend to import lots of edible oil and sugar and flood the market to make sure it stabilises," he said.

"We believe the gaps in the system will be filled in the short run and the structural flaws in the system will be addressed through legislation," Meles added.

Joseph Lake, an analyst at the Economist Intelligence Unit, said Ethiopia's current efforts are unlikely to curb rising inflation.

"The government insists that trader profiteering is the main driver of price rises, but currency devaluations as well as rising global food and fuel prices are feeding into inflationary pressures," he told Reuters.

"The government-imposed price ceilings will not be enough to offset international price rises for oil, foodstuffs and construction materials, and inflation will accelerate in 2011." (Editing by Louise Heavens)

 
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