The International Monetary Fund (IMF) has spent several weeks in Addis Ababa conducting the fifth review of the economic reform program.
In this regard, the organization has set three major obligations that the government must implement in order to stabilize Ethiopia's macro economy and strengthen its financial capacity.
These include accelerating the floating of the Ethiopian Birr in the foreign exchange market, phasing out direct state subsidies for various services and products, and taking aggressive measures to significantly increase domestic tax revenue.
The implementation of these major IMF obligations can be detailed as follows:
1. Weakening the Purchasing Power of the Birr: This involves accelerating the volatility of the Ethiopian Birr in the foreign exchange market. Although this measure is intended to address the shortage of foreign currency and eliminate the black market, it causes the value of the Birr to decline rapidly, thereby driving up the cost of imported goods.
2. Removal of Government Subsidies: This requires the government to phase out direct subsidies for fuel, electricity, and other basic services. While this reduces the burden on the government budget, it causes significant price increases in goods and services, worsening the cost of living.
3. Increasing Tax Revenue: To overcome the challenges associated with obtaining foreign loans and aid, the government is required to take aggressive measures to significantly increase domestic revenue. This obligation includes expanding the tax base and tightening the tax collection system.
Consequently, it is said that these policy reforms could have direct and challenging impacts on the Ethiopian public, especially on ordinary citizens and the business community. The devaluation of the Birr, accompanied by inflation, has made the rising cost of living a daily reality.
On the other hand, it is clear that the measures taken by the government to expand its revenue sources and tighten tax collection will inevitably become an additional burden on a public already under economic pressure.
There is also widespread concern that as tax administration rules become more stringent, law enforcement could take the form of "revenue hunting" rather than a healthy tax system.
Overall, while these measures may be seen as a fortunate opportunity for strengthening the government's fiscal capacity, it is believed that if they are not implemented with due consideration for the public's ability to pay and their living conditions, they could lead to political and economic crises.
