Reactivate Special Committee on Food, Fuel Prices – Governor to IMF

Addis Fortune (Addis Ababa)

Mahlet Mesfin

23 April 2011

Anticipating a high inflation rate, the governor of National Bank of Ethiopia (NBE), Teklewold Atnafu, has called on the IMF to reactivate the Special Committee on Food and Fuel Prices.

The committee, which was set up in 2008 to study the impact of fuel and food price increases on low income countries (LICs), assisted these countries in adapting to the changes.

Teklewold, on behalf of 21 Sub-Saharan countries, including Nigeria and South Africa, made the request during the 23rd meeting of the International Monetary and Financial Committees (IMFC), held at the IMF’s headquarters in the United States (US) on April 16, 2011.

“The increases in food and fuel prices are reaching the economies of Sub-Saharan countries, as in 2008,” the governor said.

As the inflation rate is to escalate for some time because of international food and fuel prices, it is the right move to call for the committee, according to experts.

Throughout the first half of 2008, oil prices increased continuously. On February 29, 2008, oil prices peaked at 103.05 dollars per barrel and reached 110.02 dollars per barrel on March 12 of that year. The highest oil price was recorded on July 11, 2008, at 147.02 dollars per barrel. The current oil price is 112 dollars per barrel.

The governor’s assertion was affirmed by the IMF.

International food and fuel prices are within their 2008 peak and reflect a strong demand and supply shock, according to the IMF’s World Economic Outlook, published in April 2011.

The food price index also increased by 36pc in comparison with last year, according to a World Bank (WB) report released in April 2011.

The international price increment on food and fuel prices also impacts on Ethiopia, as inflation heated to 25pc in March 2011, to which food prices were the major contributors.

Ethiopia’s highest inflation rate of 60pc, registered in December 2008, was largely influenced by the international price increment on food items; the inflation rate on food stood at 60pc and on non-food items at 21.9pc while the overall inflation rate was 44.4pc.

Scaling up lending arrangements, enhancing access to finance, and extending grace periods were suggested by Teklewold as solutions to help change the global challenges faced by LICs. The unsustainable debt burden of LICs would also compound the anticipated inflationary pressure, which would in turn impact on macroeconomic stability, he argued.

The total outstanding debt of the country stood at 6.8 billion dollars in the 2009/10 fiscal year; 21.4pc higher than the previous year’s outstanding debt and accounts for 24pc of the nominal GDP, according to Public Sector Debt Statistical Bulletin, published by the Ministry of Finance and Economic Development (MoFED), in 2010.

Emphasising that the IMF should collaborate with different donors, the governor called on it to harmonise non-uniform disbursement procedures, tighten disbursement standards, and by down conditions to determine the success of a financial programme.

By the end of April 2009, the IMF had allocated a total of 238 billion dollars, out of which 133.7 million dollars (0.05pc) were allocated to Ethiopia, according to the IMF’s 2009 country report.

The governor also urged the IMF to increase its representation of developing countries.

In 2008, the governors of the central banks agreed to undertake a comprehensive review of the quota system that is to be finalised by January 2013, so as to improve the voice of the developing and emerging economies on the fund.

With advanced European countries agreeing to reduce their combined representation on the board by two chairs, the governor reiterated for Sub-Saharan African countries to be given a chance to assume one of the chairs, which would bring the total representation of these countries to three chairs.

A seat on the board requires strong economic performance. it is contradictory for Sub-Saharan countries to require huge amounts in aid and request a seat at the same time, according to experts.

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