Ethiopia Allocates $2.9 Billion to Combat Inflation and Avoid Hunger Protests

The Ethiopian government has unveiled a significant plan to address the rising cost of living and prevent potential unrest similar to Nigeria’s recent hunger protests. The government plans to allocate 240 billion birr ($2.9 billion) for social spending amid ongoing economic reforms.

In an interview with Bloomberg, Eyob Tekalign Tolina, State Minister in the Finance Ministry, emphasized that the government has learned from the experiences of other nations. He highlighted that Ethiopia is prepared for the inflationary impact of its reforms.

“We are proposing a supplementary budget of about 550 billion birr ($5.9 billion), with approximately 40% dedicated to subsidizing essential commodities, petroleum, and fertilizers for farmers. We will also implement a safety net program to provide direct support to citizens,” Tolina stated.

Recently, Ethiopia floated its currency, the birr, transitioning to a market-determined exchange rate system. This move preceded the securing of a four-year IMF loan worth $3.4 billion and $1.5 billion in budget support from the World Bank.

Following the float, the birr’s value plummeted by 70%, from 57.48/$ on July 26, 2024, to 101.43/$ on August 6, 2024, as per data from the Commercial Bank of Ethiopia.

Despite a decline in Ethiopia’s inflation rate to 19.9% in June from 23.3% in May 2024, the IMF predicts inflation will rise to 30% in 2024 before easing to 16.2% in 2025 due to these reforms.

In contrast, Nigeria announced in February 2024 that it would disburse N25,000 each to 15 million households to mitigate the impact of inflation spurred by economic reforms, including the fuel subsidy adjustment and currency float. Since Nigeria floated the naira in June 2023, inflation has soared to a 28-year high of 34.19% in June 2024, significantly eroding purchasing power and raising living costs by 50% within a year.

Nigeria’s Finance Minister Wale Edun mentioned plans to provide an additional 60,000 metric tons of grains and distribute N50 billion in non-refundable grants to at least 1,000 artisans, traders, and small businesses across the country. Despite these measures, widespread protests have erupted against economic insecurity and the cost-of-living crisis under the #EndBadGovernance movement.

Experts argue that while these reforms were necessary, they were implemented hastily without fully considering their impact on vulnerable citizens. Adeola Adenikinju, President of the Nigerian Economic Society, noted, “The government has good intentions to fix the economy, but fell short in delivery.” Muda Yusuf, CEO of the Centre for Promotion of Private Enterprises (CPPE), echoed this sentiment, urging the administration to expedite mitigating measures to alleviate the reform’s adverse effects.

SBM Intelligence, an Africa-focused consultancy, warned that the Nigerian government could face further trouble if it fails to address the protesters’ demands adequately.