Ethiopia should consider devaluing its currency to boost exports as they are mostly unprocessed products and need to stay competitive on price, a World Bank economist said on Tuesday. Ethiopia, whose main exports are coffee, horticultural products, oilseeds and livestock, has operated a carefully managed floating exchange rate regime since 1992.
The last big devaluation was in 2010 when the birr lost 16.7 percent of its value to the dollar. The central bank quoted the birr at 19.6511/19.8476 to the US currency on Tuesday. "By one measure of real exchange rate, Ethiopia's currency is 31 percent overvalued," the World Bank's lead economist in Ethiopia, Lars Christian Moller, said in Addis Ababa.
At an event to launch an economic report on the Horn of Africa nation, he said devaluing the currency by 10 percent could increase export growth by 5 percentage points a year. "Ethiopia's exports are relatively unsophisticated, unprocessed and tend to compete in price, that means that we need to look more into what are the export prices, and how can we manage them," he said.
"This is where a competitive real exchange rate comes in. We argue that it could help support export promotion," he added. The Horn of Africa country's exports rose to $2.6 billion in the first 10 months of 2013/2014, an increase of almost $5 million over revenue earned through all of 2012/2013. But earnings from coffee, the country's main commodity export, tumbled to about $489 million during the period, less than half of the government's target.
Ethiopia has been a star economic performer in Africa, reporting double-digit growth in several recent years. Growth has edged down but the International Monetary Fund still expects a robust 8 to 8.5 percent for fiscal years 2013/14 and 2014/15. Both the World Bank and IMF have said the government needs to loosen the reins on the economy, which is still heavily controlled by the state, to avoid squeezing out the private business and hurting growth prospects in future.
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