Addis Ababa, August 19, 2023 (ENA) The government needs to put in place strong institutions and ensure accountability for the success of the new monetary policy introduced by the National Bank of Ethiopia (NBE), economists told ENA.
The NBE has implemented a monetary policy aimed at improving people's livelihoods, curbing inflation, reducing poverty, encouraging savings and investment, as well as creating jobs.
The previous 70/30 share of foreign currency transfer for exporters operating in key export businesses, especially in the manufacturing industry, has thus improved to 50/50.
This means that commercial banks will deposit 50 percent of the total foreign exchange earnings with the national bank, 10 percent with the banks and the remaining amount in their accounts.
In addition, interest on emergency loans that banks take from the National Bank of Ethiopia is increasing from 16 to 18 percent.
Also, the direct loan given to the government cannot exceed one-third of the amount given in the previous fiscal year.
The policy envisages reducing inflation to less than 20 percent by Ethiopian fiscal year 2016 (EFY) and below 10 percent in 2017 EFY.
Economist and consultant Dereje Dejene told ENA that it is important to implement a new monetary policy that will improve livelihoods and boost the economy.
It is necessary to constantly review and improve any country's monetary and fiscal policies, he said, adding that continuous improvement in both monetary and fiscal policies has helped China and Vietnam become huge economies, he noted.
According to him, Vietnam and Ethiopia had the same economy 30 years ago. The secret of Vietnam's rapid economic growth lies in the continuous improvement of fiscal and monetary policy.
Abule Mehari, chief economic researcher at the Ethiopian Economists Association (EEA), said the revised monetary policy will especially help control inflation.
The cap on domestic credit is capped at 14 percent, which will curb spending on assets and reduce cash flow, thereby helping to reduce inflation, he said.
Economists further emphasized the need for accountability along with the implementation of a new monetary policy.
It is important to control and drain the black market while supporting and recognizing loyal traders, Abule added.
The researcher also said the government needs to pay due attention to service providers and build their capacity, apart from focusing on agriculture and manufacturing.
In the area of economic governance, the successful implementation of new monetary policies depends on two key factors: robust institutions and unwavering accountability. Leading economists say that without a solid foundation of strong institutions and a culture of transparency, the potential benefits of any monetary policy can be undermined. This article delves into the critical role these elements play in shaping the effectiveness of new monetary policies, highlighting the insights provided by economists.
The importance of strong institutions:
Economists unanimously agree that strong institutions are the cornerstone of a stable economic environment. These institutions, which include central banks, regulators and financial authorities, serve as the basis for policy formulation and implementation. A well-structured institution is equipped to handle the complexities of monetary policy adjustments and ensure that decisions are informed by research, data and the broader economic context.
A robust institution promotes a sense of continuity and consistency and prevents sudden policy changes that can lead to market volatility. Additionally, it strengthens public confidence by demonstrating a commitment to long-term economic stability. By following established protocols and procedures, strong institutions promote predictability and enable businesses and individuals to plan effectively.
The role of accountability in effective policy implementation:
Accountability is another critical component that economists emphasize as integral to successful policy implementation. Accountability fosters a sense of responsibility among policymakers and forces them to justify their decisions based on measurable outcomes. Transparent reporting and open communication channels help hold authorities accountable for their actions and build trust with the public and stakeholders.
Economists argue that accountability serves as a counterweight to potential errors in policy implementation. When politicians know they are responsible for the consequences of their decisions, they are more likely to carefully weigh potential risks and benefits. This leads to a more cautious and deliberate approach to policy adjustments, thereby minimizing the chances of rash decisions.
Rebalancing:
A synergy between strong institutions and accountability is essential for the smooth implementation of monetary policies. While institutions provide the structure and expertise necessary for effective policy-making, accountability ensures that these policies are implemented in a manner consistent with the public interest.
To achieve this balance, economists advocate:
Transparency: Openly sharing policy decisions, rationales and outcomes with the public promotes trust and encourages active participation in the economic process.
Data-driven decision-making: Basing policy decisions on accurate and up-to-date data helps mitigate risks and increases the accuracy of monetary adjustments.
Independent oversight: Establishing independent oversight mechanisms prevents concentration of power and reduces the likelihood of political manipulation for political or personal gain.
In economists emphasize that a nation's economic well-being depends on cooperation between strong institutions and a culture of accountability. When governments consider and implement new monetary policies, they need to ensure the presence of strong institutions that provide stability and expertise. At the same time, fostering a culture of accountability ensures that policies are implemented transparently and prudently and protect the interests of all stakeholders. By appreciating these principles, governments can pave the way for effective policy implementation and long-term economic prosperity.
In the area of economic governance, the implementation of new monetary policies requires more than just a set of guidelines. Distinguished economists emphasize the crucial role of strong institutions and unwavering accountability in ensuring the success of these policies. This article delves into the critical link between institutional robustness, transparency and the successful implementation of monetary policy.
The importance of strong institutions:
Economists emphasize that the effectiveness of monetary policies depends on the strength of the institutions responsible for their implementation. Strong institutions promote clear communication, simplified decision-making and the creation of a consistent policy framework. These foundations enable rapid adjustment to economic fluctuations and ensure policy relevance and responsiveness.
Transparency and accountability:
A transparent and responsible management structure serves as a cornerstone for the successful implementation of monetary policy. Economists advocate open communication between government bodies, central banks and the public. This transparency not only builds trust, but also allows stakeholders to understand the rationale behind policy decisions and fosters a sense of ownership and collaboration.
Institutional independence:
Economists emphasize the importance of maintaining institutional independence, especially for central banks. Protecting these institutions from political pressures ensures the integrity of monetary policy decisions. Independent central banks can make objective judgments based on economic data and long-term objectives, rather than short-term political considerations.
Building public trust:
Robust institutions and accountability measures strengthen public confidence in the effectiveness of new monetary policies. When citizens understand the commitment to prudent economic management, they are more likely to support and follow policy measures, contributing to their overall success.
Lessons from past failures:
Economists have learned from historical cases where weak institutions and lack of accountability led to monetary policy failure. These cases highlight the importance of learning from mistakes and strengthening the institutional framework to avoid costly mistakes in the future.
Sustaining economic growth:
Successful implementation of new monetary policies paves the way for sustainable economic growth. Strong institutions ensure that policy adjustments are coherent, predictable and aligned with long-term development goals. This stability encourages investment, stimulates economic activity and ultimately leads to increased prosperity.
Economists strongly emphasize that the success of new monetary policies is intrinsically linked to the strength of institutions and the degree of responsibility held by governing bodies. A transparent, independent and accountable framework enables policymakers to make informed decisions and fosters public confidence, thereby promoting economic growth and stability. If governments act on these insights, they can pave the way to a prosperous future through the effective implementation of monetary policy.
In the area of economic policy, the successful implementation of new monetary measures depends on strong institutional foundations and accountability frameworks. Economists unanimously emphasize the crucial role that strong institutions play in ensuring the effective implementation of government-led monetary policy. This article examines the importance of strong institutional structures and accountability mechanisms in supporting successful monetary policy outcomes.
Why strong institutions matter:
Consistency and stability: Economists emphasize that strong institutions provide a stable environment for conducting monetary policy. Established frameworks ensure consistency over time, promote predictability in financial markets and investor confidence.
Transparency: Transparent institutions improve communication between policymakers and the public. When citizens understand the reasons behind policy decisions, this will boost public confidence and reduce uncertainty.
Effective decision-making: Sound institutional arrangements facilitate informed decision-making processes. This is essential in times of economic turbulence and enables quick and effective responses to emerging challenges.
Role of responsibility:
Checks and Balances: Accountability mechanisms prevent abuse of power and resources. An accountability system forces policymakers to justify their actions and promotes responsible decision-making.
Performance incentive: When policy makers are held accountable for policy outcomes, they are motivated to create effective strategies. This ensures that monetary policy is consistent with broader economic objectives.
Learning and adaptation: An accountable environment encourages learning from past successes and failures. Policymakers can refine their strategies based on feedback and data analysis, leading to continuous improvement.
In the successful implementation of new monetary policies by the government is conditioned by the presence of strong institutional frameworks and robust accountability mechanisms. These elements ensure stability, transparency and efficiency of policy implementation. Economists emphasize that a proactive approach to strengthening institutions and enforcing accountability not only protects the economy from volatility, but also promotes sustainable economic growth.
As governments around the world navigate a complex monetary policy environment, the lesson remains clear: nurturing strong institutions and promoting accountability are the cornerstones of a prosperous and resilient economic future.
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