Human Factors of XR: Using Human Factors to Design XR Systems
Foreign Exchange Rationing and Food Security in Ethiopia
1. Foreign Exchange Rationing
and
Food Security in Ethiopia
Paul Dorosh
International Food Policy Research Institute (IFPRI)
(Ethiopia Strategy Support Program, ESSP-2)
Hashim Ahmed
Ethiopian Development Research Institute (EDRI)
Ethiopian Economics Association
Seventh International Conference on the Ethiopian Economy
26 June, 2009
The views expressed in this paper are those of the authors and do not represent the official positions
of their respective institutions.
2. Outline of Presentation
• Recent macro-economic developments
– Current account
– Nominal and real exchange rates
• Changing determinants of wheat prices over time
– Import parity and decomposition of nominal prices
• Implications of rationing of foreign exchange
• Government market interventions 2008
• Concluding observations
3. Ethiopia Trade and Current Account
Transfers, 2004/05 – 2008/09*
12
10
8
billion US$
6
4
2
0
2004/05 2005/06 2006/07 2007/08 2008/09*
Imports Exports + All Transfers Exports + Net Servs + Priv Transfers Exports
* Projected.
4. Ethiopia Trade and Current Account
Transfers, 2004/05 – 2008/09*
Nominal
Nominal Exchange Real
Exchange Rate (Birr/$) World Price World Price Exchange
(Birr/$) (Index) Index ($) Index (Birr) CPI Rate Index
July 2004 8.80 100.0 100.0 100.0 100.0 100.0
January 2005 8.83 100.3 102.7 103.0 102.9 100.1
July 2005 8.84 100.5 101.4 101.9 111.5 91.3
January 2006 8.86 100.6 104.1 104.7 112.8 92.8
July 2006 8.87 100.8 108.7 109.6 125.7 87.2
January 2007 8.99 102.1 110.4 112.7 131.6 85.7
July 2007 9.21 104.7 116.8 122.3 143.6 85.1
January 2008 9.40 106.9 127.0 135.7 157.5 86.1
July 2008 9.83 111.7 139.6 156.0 235.8 66.2
January 2009 11.06 125.7 120.0 150.8 217.0 69.5
March 2009 11.39 129.5 120.2 155.7 222.2 70.1
July 04 - Mar 09
(percent change) 29.5% 29.5% 20.2% 55.7% 122.2% -29.9%
Source: EDRI and authors’ calculations.
5. Ethiopia: Nominal and Real Exchange
Rate Indices, 2004/05 – 2008/09*
250
200
150
100
50
0
Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08
Real Exchange Rate Nominal Ex Rate CPI World Price Index
6. Determinants of Wheat Prices
Four Market Regimes
• January 2000-June 2005: Domestic wheat prices were generally between
import and export parity
– Given levels of official imports (including food aid), there was little incentive
for private sector imports of ordinary wheat
– Domestic prices were determined by domestic supply (including official
imports) and demand
• July 2005-March 2007: Domestic wheat prices were generally at import
parity levels
– Private sector imports adjusted to equate total supply and domestic demand
at the import parity price
• April 2007- May 2008: Domestic wheat prices were again below import
parity
– Given sharp increases in world prices, private sector imports were not
profitable
• June 2008 – May 2009: Domestic wheat prices were above import parity
– Restrictions on foreign exchange for imports prevented private imports from
taking advantage of profitable import opportunities
16. Concluding Observations
• Wheat price formation regimes have changed several
times between 2000 and 2009:
– For most of this period, domestic prices have NOT been
determined by international border prices
• Given foreign exchange rationing starting in March
2008, private sector wheat importers have had
restricted access to foreign exchange
– Domestic wheat prices have been above wheat import
parity prices since May 2008
• Government sales of its wheat imports from July to
October 2008 successfully reduced domestic market
prices
– Sizeable rents accrued to those with access to wheat
imports at official prices
17. Concluding Observations (2)
• Rationing of foreign exchange has major implications
beyond the wheat market… on export competitiveness,
economic growth and income distribution
– Restricting effective demand for foreign exchange inhibits
the real exchange depreciation needed to restore
equilibrium in external accounts
– An appreciation of the real exchange rate leads to lower
prices of exportables and non-protected importables,
reducing incentives for production of tradable goods
– As in the case of wheat imports, rationing of foreign
exchange implies large rents for those with access to the
rationed foreign exchange
• Further analysis of these economy-wide effects of
foreign exchange rationing, using a Computable
General Equilibrium (CGE) model based on the 2004/05
EDRI SAM, is underway