Home Opinion Special Reports Ethiopia continues gradual lifting of fuel subsidies amid soaring cost of living

Ethiopia continues gradual lifting of fuel subsidies amid soaring cost of living

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The Ethiopian government has announced a new fuel retail price adjustment as the gradual lifting of fuel subsidies compounded the soaring cost of living in the country.

The Ethiopia Ministry of Trade and Regional Integration (MoTRI) said Friday that the latest price hike would see gasoline prices rise to 77.65 Ethiopian birr (about 1.4 U.S. dollars) per liter from the previous 74.85 Ethiopian birr. According to the new fuel retail price adjustment, the price of a liter of diesel has jumped to 79.75 Ethiopian birr from 76.34 Ethiopian birr.

This is the second price increase of fuel within one month as MoTRI announced one liter of diesel price rise from 67.30 Ethiopian birr to 76.34 Ethiopian birr on Aug. 29.

The latest fuel retail price adjustment sees the price of gasoline and diesel more than double as compared to last year. For context, in May last year, the price of gasoline was 31.74 Ethiopian birr per liter, while diesel was sold at 28.98 Ethiopian birr per liter. The price has now reached 77.65 and 79.75 Ethiopian birr, respectively.

The Ethiopian government blamed the rising global oil prices for its decision to institute the price hikes. Noting that the international fuel price has been showing an increase since the end of June, the ministry said the decision to increase the retail prices is made to reflect the current international fuel market.

The Ethiopian government previously said it had spent in excess of 100 billion Ethiopian birr on fuel subsidies for the 2021/2022 Ethiopian fiscal year that ended in July 2022.

The government warned that the huge sum of fuel subsidies, aimed at curbing the soaring cost of living, was hugely impacting the country’s economy. The phenomenon eventually triggered the government’s decision to gradually lift fuel subsidies.

Experts, however, argued that while the huge sum of fuel subsidies has been exerting unwanted financial pressure on the East African country’s economy, it plays a significant role in terms of controlling inflation and mitigating the economic impact on the daily life of citizens.

Costantinos Bt. Costantinos, a professor of public policy at the Addis Ababa University in Ethiopia, told Xinhua in a recent interview that the gradual removal of fuel subsidies would have positive macroeconomic implications albeit its challenges.

He said the move would free up financial resources for other sectors of the economy, increase employment, reduce the budget deficit and generate a budget surplus, curb corruption and fuel smuggling to neighboring countries and crimes associated with fuel subsidy payments, increase competition, and reduce government borrowing and pressure on the exchange rate.

“It will also lead to accurate pricing that reflects actual conditions in the international market for crude oil,” the expert said. “On the flip side, fuel subsidy removal may decrease economic growth in the short term, increase inflation and thereby poverty, increase the prices of petroleum products and, thereby, increase transport costs of fertilizers to farmers and agricultural products to consumers and loss of jobs in the informal sector.”

Costantinos underscored the need to implement prudent economic measures that address the unwanted economic pressure that arises from the country’s surging fuel expenditure and give due emphasis to the economic condition of Ethiopians and the country’s economy at large.

“On the microeconomic side, the government should carefully gauge the bearing of fuel subsidy removal on individuals and businesses and provide safety-net economic relief programs to forestall the adverse effect on individuals and firms,” he said.

Tewodros Beshah, a self-employed who leads a family of five in Addis Ababa, Ethiopia’s capital, said the continued fuel price hike is one major factor in the soaring cost of living.

“With the continued fuel price hike, more and more Ethiopians are opting for taxis and other alternatives rather than driving a car. Transportation cost has also significantly increased with the cost of fuel,” he said.

As Africa’s second most populous nation grappled with the sharp increase in basic items, the fuel price hike has further exacerbated the existing cost of living.

Amid the pressing challenges, the National Bank of Ethiopia (NBE) said it would undertake monetary policy measures that would reduce the inflation rate and its adverse impacts on society.

Noting inflation in Ethiopia has negatively impacted the social and economic spheres, NBE Governor Mamo Mihretu associated the increase in inflation with supply limitation, increase in cost of manufacturing, conflicts in parts of the country, increase in price of goods such as fertilizer, as well as the surge in cost of fuel and transport, among others.

Mihretu emphasized the need to take critical measures to lower the country’s inflation rate, which include enhancing the supply of agricultural products, undertaking structural change in transportation, logistics and trade competitiveness as well as implementing pertinent monetary policy.

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