Government’s effort to Reduce Inflation

                                                                                                                          Taye Kebede

In the Current Inflation report, as a consequence of the government’s measures, it has been able to lower the rate it to one digit –5.9%. What we can understand from this is that how much the government is attentive to the public’s outcry, seeing as how it took the necessary steps to lower the previously two – digit Inflation rate to the stated number within a short period of time.

Of course we all remember the price instability that reigned on the market, and the consequent government’s steps to amend this. It can be said that the issue was a like a sudden shock for the public. Especially the consumers were hard hit by it, and the government had this same thinking and feeling of the general public.

In addition to being sensitive to the issue, the government took a quick response in order to stabilize the market. Here, when I say the feeling and wishes of the government and the public is the same with regards to rising prices on commodities, I am not saying that there were no sides, albeit few, who were happy to see the situation that was unfolding. We have come to see the identity of those who were happy at that time, after the situation unfolded.

In order to understand better about the rising living conditions, and the measures taken to rectify it; it’s necessary to look first into the causes of the problem. As it known, it has been more than two decades since our country started to follow a free market system where the government intervenes in some selected sectors. This has helped edify a business order in our country which is competitive, dynamic, sustainable and quickly receptive.

In addition to giving the consumers full freedom to do their business exchange, this order has been and still is playing a major role in creating developmental investors both in quality and quantity. And the government is playing the lion share in creating and rooting this brand of free market system.

Here, it is important to raise the question ‘what kind of illness came up lately that would trouble the health of the market?’ There were various issues that caused the market instability in our country. Especially, it can be said that the effects that came with the international economic crisis is the main cause for the problem.

It’s a known fact that today we live in times where quick and huge market integration is edified in international level. This integration not only involves the mighty and developed nation but also those developing countries as well – either through selling or buying a single commodity. Ethiopia is no exception to this, as the country is currently on a trade with more than 120 countries.

In this market, our country gains huge foreign currency reserve by exporting international standard commodities like coffee, oil seeds and others, while it imports very necessary raw materials, like construction materials, needed for its developmental works. And this global market; which has a huge important for our country’s economic development just like every other country out there for various reasons was hit with some crisis.  And this caused an unexpected and fast increase in prices of various commodities our country imports – this is why there was a rise in the price.

Although the main reason for the rises in prices inflation in our country has to do with the international global market, but there were also other reasons. Out of these reasons, the rise in demand of some commodities, in relation to the growing developmental works taking place in parts of the country, is one. Of course, rise in price inflation that come as a result of the development works taking place is unpredictable and considered as a huge problem. As long as there’s development, it’s inevitable for the demand of some commodities to rise. And the producers of these commodities might take a reasonable rise on their prices, as it does not contradicts negates the laws of free market. The rise in prices of commodities like cement, iron, metals and some other grains can be an evidence of this.

The other thing that can be seen as a dangerous cause for the market instability has to do with the rent-seekers that are hoarded within other businessmen. As it can be recalled, at the time when the problem was starting to be seen, there wasn’t a rise in price in every type of commodities; and it would not have happened.

The rise was only seen on imported commodities including construction materials. As this have a reasonable explanation behind it; the public did not have any problem in accepting the explanation, and the government didn’t sit idly thinking that these temporary problems caused by the price rising in the global market and the developmental works that’s being carried out in the country, will not harm the general public. It took a swift action that would assist the free market system.

At the time, in addition to subsidizing in order to stabilize the market instability caused on construction materials, the government gave a tax-free for some commodities. And it’s obvious that these measures have a huge burden and repercussion on the government’s budget and revenue. Nevertheless, the government did not back down from taking those measures even knowing their repercussions. This shows the government’s long–sightedness. The government was able to create ease in the market by taking measures to remedy these short term problems.

However, during the time when the government was busy trying to solve the problem, there were those who tried to worsen the problem. Of course it can be said that these forces are few. But, if weighed the damage they can cause, they are not to be underestimated. Not only do they have strong financial capabilities, they have also rooted ties within the market. And we have seen them trying to inflict heavy devastation by pooling these capabilities of theirs.

In one side there was a situation in which they were able on to cause shortage in the market by hiding commodities, while on the other hand they waged a huge campaign to pressure the developmental businessmen to not sell on a price that befits them. This ruinous network set up by these rent seekers is not only fenced only to Addis Ababa and other regional capitals. They have worked to enter as far as the farmers. They spew a bogus propaganda targeted for the farmers not to bring their products to the market, to think that it’s free of its tax duties and to hide its product.

And this is what made an ample contribution for the rise in prices, both to those commodities that deserved it and to those who didn’t. It safe to say that the real reason behind the rise in price on commodities, that have adequate supplies, just like resources like oil and the likes, has to do with the psychological warfare waged by these forces.

The market instability that is caused by the ruinous network of these greedy forces, and for other reasons, will at the end of the day do harm on the public. And the government has to work hard to fulfill its duty of protecting the public from entering into problem. And this was what the government exactly did.

It went to taking measures to solve the public’s problem in a way that doesn’t harm the free market by weighing its options, before the temporary market instability spiraled out of control. Its increase of public servant’s salary, temporary price adjustment on basic commodities and marginalizing and taking measures against unlawful business are some of the steps taken by the government.

These measures and steps taken by the government to weather against the rise in price may have given huge help in the public not to sustain heavy harm; but it’s obvious that they are not solutions for the long term. The fact that it should prioritize and take measure on issues that can have huge role in stopping the rise of price in a continuous and sustainable manner, cannot be put to debate.

As any reader of this article can understand, the main and long lasting solution to rise in price and rising demand that comes as a result of fast growing economy is to hasten the development. And the government deeply understanding this fact is now hastening the developmental works that can give long-term solution to the temporary market problems.

Understanding the role the agricultural sector has on the country’s economic growth and on remedying the rise in the price inflation, the government has been taking steps in accordance. With this in mind, the government has been giving various supports for the small holder framers to harvest much better products in the 2016 production year. For instance the government has done huge work for the farmers to get seed plants, fertilizer etc … on time and get on with their work.

In addition to this, it had carried out successful works in giving various technical supports to the farmers. As a consequence of all this, it has been able to gain huge success with regards to the agricultural sector in this production year. It will play its own role in the Second Growth and transformation plan.

In General, the government has been doing pro-people action by taking important measures to control inflation. And it can’t be put to debate the fact that these measures played a role in subduing the inflation from laying a huge burden on the public. The aforementioned measure implies that the current one digit inflation problem is only a short term problem. And I think the current one digit inflation reduction (i.e. 5.9%) is commendable feat for the government.