National Bank Performance Positive Despite Avoidance of Long Overdue Challenges

Although inflation has been maintained at single digits, some suggest this has come through measures that suffocate the economy

Though indicative of reasonably competitive achievements in terms of monetary objectives, a nine month performance report of the National Bank of Ethiopia (NBE) also shows that some of the long overdue challenges have been avoided, if not aggravated.

Direct borrowing by the government, a below standard foreign currency reserve, increasing trade imbalance and the swelling size of non-performing loans are among the recurring challenges yet to be solved, a closer observation of the report reveals.

Presented for evaluation by the Budget amp Finance Affairs Standing Committee of the parliament, the report shows that the bank has successfully contained inflation to a single digit, sold treasury bills worth 72.8 billion Br (out of the planned 75 billion Br) and drastically increased the accessibility of banking services during the past nine months, according to the committee.

The year on year inflation rate has been kept to 8.8 percent, while the moving average inflation is 7.5 percent, according to Teklewold Atnafu, governor of the NBE.

In fact, Teklewold was cautious enough while briefing the MPs on the issue.

“Though down to a single digits from 32.2pc before two years, a closer follow up is required to keep it from re-rising,” he said.

The caution did not come without reason, for a macro-economic analyst who spoke to Fortune on condition of anonymity. The inflation is not contained solely by the macroeconomic policy it follows, but rather by other measures that suffocate the economy, he said.

The average exchange value of Birr in terms of the US dollar is 18.95pc, which indicates the depreciation of the Birr by close to five percent compared to its value at a similar period last year, according to the report.

The physical accessibility of banks has significantly increased during the months covered by the report. The 19 operational banks – 16 private and 3 government owned – has raised the total number of their branches to 2,099 branches from 1, 621 in the last year. Almost half of these branches are that of the three government owned banks.

However, the governor was curious about the set-back posed to the quality of banking services by the repeated interruption of telecommunication network given the national endeavor to create a cashless society.

“Ethio telecom and the Ethiopian Electric Power Corporation (EEPCO) shall provide efficient and effective services,” he said.

The government has borrowed nine billion Br from the bank over the past nine months, which otherwise was planned for annul lending to it, the report indicated. This may cause inflationary pressure in the following year, according to macroeconomic observers.

On top of this, the perennial deficit in trade balance of the country has increased by more than 1.3 billion dollars compared to a similar period last year, where it was 6.57 billion dollars.

The country has spent more than 10 billion dollars over the last nine months, which shows a growth of close to 15pc from a similar period the previous year. The reasons attributed for this increase in the size of expenditure on imports is the comparable increase in the price of capital goods and equipment, consumer commodities, fuel and finished and semi-finished products, according to the report.

In contrast to the increasing in the side of the expenditure on imports, the country’s revenue from exports has shown a decline by more than 6.6 million dollars from the amount of the same month of last year.

The foreign currency reserve of the country during the report period is about two billion dollars, according to the report. This is below the mostly accepted standard of three billion dollars. Indeed, the standing committee also observed the insufficiency of the current reserve when calling for a concerted effort of the government to raise the amount in it suggestions to the officials of the bank.

Unexpectedly, the amount of non-performing loans of the 16 private banks has increased from 2.48 billion Birr, last year, to 3.09 billion Birr this time.

“The decline in the price of coffee and crop products has presumably contributed to the rise,” reads the report.

By and large, the borrowing by the government, below standard foreign currency reserve, increasing trade imbalance and swelling size of non-performing loans are among the recurring challenges yet to be solved.

Source : Addis Fortune

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