Dissemination and Advocacy Session on “Leveraging Enhanced Special Drawing Rights (SDR) allocation to finance resilient economic recovery in Ethiopia”

Dissemination and advocacy session on "Leveraging Enhanced Special Drawing Rights (SDR) Allocation to Finance Resilient Economic Recovery in Ethiopia"

March 8, 2024

The Horn Economic and Social Policy Institute (HESPI) in collaboration with African Economic Research Consortium (AERC) organized a Dissemination and Capacity Building Workshop on Leveraging Enhanced Special Drawing Right (SDR) Allocation to finance Resilient Economic Recovery in Ethiopia. Abdurahman A. Hussien, a senior research fellow at HESPI presented the findings of the study. Participants included experts from the Ministry of Finance and the National Bank of Ethiopia, independent researchers as well as representatives from development partners including USAID and UNDP.

The study findings highlighted on the widening fiscal and balance of payment (BoP) deficit and state of debt distress that low income countries including Ethiopia have experienced following overlapping economic shocks in the last few years. A rising debt service in recent years in Ethiopia has been crowding out the limited resources from important social and economic sectors, causing a reversal of development gains made in the 2000s and 2010s. The study also highlighted the vulnerability of the economy to climate change induced shocks such as drought.

The implication of the study is that the country needs financial assistance for short term relief from liquidity crunch as well as to finance medium to long term resilient recovery. In this context, the study highlighted the potential role of enhanced SDR allocation and reallocation as a viable source of development finance. The study also emphasized the need to improve capacity in debt management as well as ensure transparency and accountability. The study findings will be used to advance the advocacy towards improved debt management practices on the one hand and enhanced SDR allocation on the other hand.

Following the dissemination session, a capacity building session on advocacy was held. The training identified the issues to influence through advocacy, the advocacy strategies and spaces, as well as the role of civil society organizations (CSOs) and the media. The training emphasized the need to build capacity of legislature and executive, promote transparency and accountability at the national level. The study also highlighted on the need to have collective voice at the continental level in pushing for reform on SDR allocation and reallocation at global platforms such as the G20, World Bank-IMF spring meetings.

The Horn Economic and Social Policy Institute (HESPI), in collaboration with the African Economic Research Consortium (AERC), organized a Dissemination and Capacity Building Workshop on Leveraging Enhanced Special Drawing Right (SDR) Allocation to finance Resilient Economic Recovery in Ethiopia. Abdurahman A. Hussien, a senior research fellow at HESPI, presented the findings of the study for the Ethiopian case. Participants included experts from the Ministry of Finance and the National Bank of Ethiopia, independent researchers, and representatives from development partners such as the United States Agency for International Development (USAID) and the United Nations Development Programme (UNDP).

The objective of the workshop was to validate the findings of the study and impart advocacy strategy knowledge and skills to key stakeholders.

Welcoming address was made by Ambassador Peter Robleh, Associate Managing Director of HESPI. He depicted the gloomy macroeconomic situation in countries in the global south including Ethiopia following the overlapping shocks and the need for reform in the international financial architecture so that they are responsive to the needs of such countries. He underlines underlined the need to amplify the voice for reform based on evidence. In this regard, he applaudeds the financial and technical support by AERC to generate evidence using country case studies in Africa, thereby supporting the voice for reform.

Opening remarks were made by Daniel Fantaye, Program Director of HESPI. In the opening remark, Daniel discussed the state of macroeconomic malaise in countries in the global south, following the multiple global shocks. He also highlighted on the precedence taken by debt servicing over important social and economic sectors as a result of growing indebtedness, dwindling domestic and foreign finance. He continued his remark by pointing to the mismatch between SDR allocation and SDR utilization, where countries that need SDR the most get the least SDR. Finally, he underlined the need to have a collective voice to call for reform in SDR allocation using evidence such as the findings from the Ethiopian case study.

Once the stage was set, Edris Hussien, a Senior Research Fellow at HESPI took over to chair the presentation of the dissemination. Edris narrated the process of the study from the inception to the dissemination. He appreciated the feedback and data provided by stakeholders who were attending the workshop before inviting one of the authors to make the presentation.

Abdurahman Hussien, a Senior Research Fellow at HESPI presented the study by focusing on the key findings and key policy recommendations. The study findings highlighted on the widening fiscal and balance of payment (BoP) deficit and state of debt distress that low income countries including Ethiopia have experienced following overlapping economic shocks in the last few years. A rising debt service in recent years in Ethiopia has been crowding out the limited resources from important social and economic sectors, causing a reversal of development gains made in the 2000s and 2010s. The study also highlighted the vulnerability of the economy to climate change induced shocks such as drought.

The implication of the study is that the country needs financial assistance for short term relief from liquidity crunch as well as to finance medium to long term resilient recovery. In this context, the study highlighted the potential role of enhanced SDR allocation and reallocation as a viable source of development finance. The study also emphasized the need to improve capacity in debt management as well as ensure transparency and accountability. The study findings will be used to advance the advocacy towards improved debt management practices on the one hand and enhanced SDR allocation on the other hand.

The presentation session was followed by a panel discussion on Ethiopia’s debt and Balance of Payment situation. Panelists include Yohannes Alemayehu, Team Leader of the Balance of Payment (BoP) division at the National Bank of Ethiopia, Yohannes Hailu, representative from debt management division at the ministry of Finance currently leading the Economic Reform and Privatization Secretariat for State Owned Enterprises Monitoring and Oversight division head, and Dr. Firew Bekele, an independent researcher.

Mr. Yohannes Hailu emphasized the need to refocus effort to restore fiscal discipline in the revised Home Grown Economic Reform (HGER 2.0). Specifically, he argued the need to keep the promise to limit direct borrowing from the NBE. He also argued the need to reduce inefficiency among state owned enterprises (SOEs) by instilling business-oriented corporate practices. He also indicated that the latest debt management strategy expired in 2020 and needs to be updated regularly. Finally underlined the need to enhance domestic resource mobilization capacity. In this regard, he expressed his optimism on the potential of the newly established capital market to mobilize domestic capital.

Mr. Yohannes Alemayehu admitted that the widening trade deficit is a key contributor to Ethiopia’s growing indebtedness, particularly the very little progress in export in the face of increasing import. He acknowledges the fact that the appreciation of real effective exchange rate (REER) against major trading currencies, which is in part due to rising inflation, also play a role in the low performance of the export sector. He continued to argue that although devaluation of the domestic currency helps to improve the export, it also will have unintended consequences including significant inflationary pressure. For this reason, it is not clear if the government will devalue the currency. However, he argued the government is taking monetary policy measures to restore price stability. The government is also encouraging import substitution strategy recently to help narrow the external trade imbalance.

Dr. Firew Bekele recalls the reluctance of the previous government to practice cautious borrowing over a decade ago. The argument then was Ethiopia needs more borrowing. He indicated how the lack of seriousness in practicing prudent debt management partly contributed to the state of debt distress we are in today. He emphasized the need for a stronger parliamentary oversight on debt acquisition and debt management.

Following the panel discussion, there were interactive discussions and Q&A session. The key takeaways from the dissemination session is that:

  • SDR is vital source of financing for countries like Ethiopia and there should be collective voice in the call for reform in SDR allocation and recycling.
  • Participants recognized SDR is not a silver-bullet to Ethiopia’s macroeconomic problems. Hence, restoring discipline in macroeconomic management should be given equal, if not more, emphasis. In this regard, building the capacity and mandate of the legislature to have a stronger oversight role over the executive was emphasized.
  • Given Ethiopia’s tax share of GDP is about half of SSA’s average, the need to enhance domestic resource mobilization (DRM) was also emphasized. In this regard, the need to build capacity of revenue authorities was raised.

Following the dissemination session, a capacity building training on policy advocacy was provided by Abdurahman Hussien. The training identified the issues to influence through advocacy, the advocacy strategies and spaces, as well as the role and mandate of civil society organizations (CSOs) and the media. The training emphasized the need to build capacity of legislature and executive, promote transparency and accountability at the national level. The study also highlighted on the need to have collective voice at the continental level in pushing for reform on SDR allocation and reallocation at global platforms such as the G20, World Bank-IMF spring meetings, among others.