[ad_1]
Two million jobs are likely to be lost
Alemayehu Geda (PhD, Prof), a leading economist, has painted a dire look at economic growth set for the new fiscal year, predicting that it will contract further and even drop to negative 2.7 percent.
Discussing his findings, which he originally analyzed in May and updated with ever-changing scenarios, Alemayehu cast doubt on the government’s 2021 GDP projections and is doubtful. According to government estimates, the forecast for GDP growth was set at 8.5 percent. According to Alemayehu, that estimate is unclear as to whether it takes into account the impacts of COVID-19.
In April, the government announced that it cut growth forecasts for the fiscal year that ended, to contract to six percent, from the previous nine percent. However, this year’s growth is set at 8.5 percent.
Speaking at the newly formed Civil Society Forum, Good governance of AfricaThe East Africa Chapter on Friday, Alemayehu said the government may need a highly expansionary growth rate to achieve growth of 8.5 percent.
“It is not clear if the possible impacts of COVID-19 have been taken
account in this forecast. If not, the government needs a growth rate of 19.7 percent to reach this level of economic growth of 8.5 percent, with COVID effect included; and this is completely unreal, ”said Alemayehu.
Digging deeper into what the 19.7 percent growth incorporates, Alemayehu said the impacts of COVID-19 will force the economy to witness an 11.2 percent contraction, if the virus lasts through the end of 2020. In the worst-case scenario, the contraction is projected to swell further up to 16.7 percent.
“On the other hand, if the possible effects COVID were not taken into account, growth, including the COVID effect, will be Negative 2.7 percent (almost a 3 percent decrease) in the average scenario that is predicted in this study (in the best case of an economic 5.6 percent decrease due to the pandemic) “That according to the expert could mean a growth of three percent in the new fiscal year.
The contraction in the economy is expected to be felt mainly by the service and industrial sectors. Both sectors contribute around 70 percent of the jobs of the urban population. The economist suggested that of the seven million wage earners and three million self-employed, his revised projections have indicated that some two million jobs could be lost, resulting in a loss of 2.5 billion birr of monthly income. According to their estimates, 1.7 million self-created jobs and some 300,000 private companies are likely to feel the impact.
In addition, of the 500 companies surveyed by the World Bank and the Job Creation Commission, 23 percent of these companies are waiting for the state of emergency to be lifted in order to lay off employees.
To avoid the growing socioeconomic impact, Alemayehu recommended that the government take care of its expenses, mainly on the capital side. However, the recently approved 476 billion birr budget has indicated a 23 percent increase from the previous year. That has resulted in a budget deficit of some 143 billion. Coupled with the debt service of two billion dollars, with the current inflation rate of 23 percent and the increasing depreciation of the birr, Alemayehu fears there is a possibility of an economic shock.
The expert indicated that a 10 percent depreciation in the purchase value of a particular currency, coupled with a 10 percent increase in the money supply, to finance the deficit by printing money, could certainly result in an increase. 20 percent in inflation. Therefore, Alemayehu recommended a policy response that focuses on areas that could expand revenue.
The Finance Ministry made it clear that the strict fiscal policy will not be considered for the new fiscal year. Instead, according to Eyob Tekalign (PhD), Minister of State Finance, an expansionary fiscal policy has been programmed focused primarily on addressing health and social problems.
