Analysis: Salaried government workers scramble to cope with soaring cost of living; economists urge end to money printing

By Biruk Alemu @Birukalemu21

Addis Abeba: A survey released by “Statista” in August 2022 ranked the city of Addis Abeba second among the fifteen African cities with the highest cost of living. Nowhere is the pain of that felt deep than among the city government employees who depend on fixed income to cope with the unstoppable rising cost of living.

Addis Abeba is ranked among the leading cities for its high cost of living because the average amount of money required in the city to cover basic expenses such as housing, food, taxes, and health care is simply too high. This cost of living index measures how expensive it is to live in a city, and Addis Abeba’s cost of living index score stands at 50.49.

Such soaring cost of living in the city is directly related to the salaries of its residents. Under normal circumstances, if the expense or the cost of consumption is higher, so should the salary levels. But in Addis Abeba, the base salary scale for government employees is 1100 ETB and the high ceiling reaching around 26,959 ETB.

Addis Standard spoke to some government employees living in Addis Abeba, the city with the highest cost of living in Africa.

Shimelis Megersa has been working as a teacher at an elementary school in Addis Ababa for the past 7 years. During a conversation with Addis Standard, he said that the inflation observed in the city is not only worrying him badly but also challenging their existence. According to him, with the salary he earns, he pays the house rent, buys food, and because there is no money left over, it is difficult for them to educate their two children, forcing him to quit his job in search of better income.

“My wife earns 2000 ETB per month for a cleaning job and we are not able to meet our basic needs. Since it is difficult to continue in this situation, I have decided to quit my teaching job and do some private work, even if it is small.”

Zinash (whose name has been changed because she did not want to be disclosed) who is working in Gulele sub-city and is making a living, explained to Addis Standard that the cost of living has affected all sections of the society, but the government employees have been hit hardest. Mrs. Zinash also mentioned that the inflation is increasing day by day and said that the government should either increase the wages of the workers or reduce the price of goods.

“Since it is difficult to continue in this situation, I have decided to quit my teaching job and do some private work, even if it is small.”

Shimelis Megersa – Teacher

Another government employee, who did not want his name and office to be mentioned, says that  “since it is the holiday season, there is an increase in goods. It is difficult for me to live on eight thousand birr, the salary runs out before the end of the month. The government does not understand the plight of [its] employees. We are confused about what to do,” he said about the problem.

July 2022 inflation

In the report published by the Ethiopian Statistical Service, it is  mentioned that inflation is becoming a challenge not only in our country but also in developed countries. In July 2022, the food index showed moderate stability, while the non-food index showed an increase. Based on the report, last month’s total inflation rate reached 34.0 percent, and in July 2022, the annual total inflation rate was 33.5 percent. The reason for the low rate of inflation this month is that the rate of inflation recorded in July last year showed relatively rapid growth. The non-food component of the index has shown an increase in the current month, according to the report.

The statistical service mentioned that the increase in prices has been observed in the last 12 months, but that the growth has increased in the same manner from month to month, and explains that the measures taken to stabilize the price have contributed greatly to prevent further damage. In the last 2 months, the overall and food price inflation has shown a slight decrease. However, the rate of non-food inflation has shown a slight increase in the last few months.

In July 2021, the total inflation rate was 26.4% and  in July 2022, it had risen to 33.5%. Similarly, in July 2021, the total consumer price index in Addis Abeba city administration was 228.8, and in July 2022, It increased to 300.6.

This report from the Ethiopian Statistical Service indicates that the rate of inflation has increased significantly.

Economists forward solutions

Dr. Eyob Tekalign, Minister of State for Finance, stated on March 8, 2022, that product costs are increasing dramatically and that one of the main reasons for the current inflation is that the price of imported goods fell directly on consumers. He added that the government will open the market system to foreign firms.

He stated that the cost of several products, such as steel, oil, and fuel, which Ethiopia imports from abroad, have more than doubled  and that the country’s security situation has caused huge disruptions in product supply, which has greatly contributed to the price increase. “The monetary policy that the government is using to cover its expenses is also causing pressure of its own,” he added, “and if the government can’t fix these over time, things will get worse.”

He pointed out that because the country’s retail market system is controlled by a few, it has made the government to rethink about bringing rapid reforms.Just like the telecom sector was opened to foreign competition, so will Ethiopia’s retail market system. He said that this will prevent the trader from making too much profit.

Apart from these factors, the constant expansion of the exchange rate between the dollar and Birr has contributed significantly to the running inflation, he said.

The Minister of State said, “There is no one within the government that says the reform we have started in foreign exchange sector is not harmful, but the government needs to overcome the impact. There are also implications of the delay in the reform itself, but we will implement that quickly and work to solve the problems.”

Although reforms have made a big difference, especially in the export sector, when challenges pile up, delaying some reforms will be seen as a considered solution, he said.

According to Atlaw Alemu, an assistant professor of economics at Addis Abeba University, the cause for the inflation is that the government is printing money. He explained that if the government does not stop remittances into the country while the economy is printing more than it can handle, government employees and low-income sections of society will suffer as inflation worsens. While the National Bank has the authority to manage the amount of money in the economy, it chooses to remain silent on the issue of not printing money; as a result, the government will enter debt, causing another problem, he explained.

“The government is now spending on non-essentials, which leads to money printing and inflation, which promotes inflation”

Atlaw Alemu

The professor said that, unless there is an abundance of money in the economy, the merchants cannot increase their sales as there is no buyer. Because of the availability of printed money, an item that cost one billion birr a year ago bought two billion birr this year, according to the economist. As a result, when those with purchasing power buy at high prices, they make life difficult for government employees. As a result, the government should stop printing money.

Another economics lecturer at a local university, Addisu Abebaw, said that inflation is 30 to 40% this year, citing the country’s war as one of the reasons. He went on to say that the government’s egregious spending has ramifications (cause). “The government is now spending on non-essentials, which leads to money printing and inflation, which promotes inflation; for example, money spent on entertainment should be temporarily halted and spent on food and other necessities to ensure the survival of civilization.”

He added, “The war between Ukraine and Russia has caused the price of oil to increase, so the price of production has also increased.” He mentioned that this has had a big impact on low-income earners and government employees. An increase in prices means a decrease in income, while those with a fixed income are getting poorer, while businessmen have an opportunity to earn a better income, and income inequality is created. He explained that the higher the inflation rate, the lower the taxes, and the government’s tax revenues will be unstable, so the government will start printing money, and the inflation will worsen, and the people will be exposed to the high cost of living.

“The government’s biggest problem is the importation of goods that can be produced in the country”

Addisu Abebaw

According to Addisu, significant government action is required to control inflation, particularly through stabilizing the commodities market and shortening the supply chain between the customer and the seller. He suggested that forcing farmers to deliver directly to consumers could be a short term solution.

“The government’s biggest problem is the importation of goods that can be produced in the country,” the economist stated. According to him, even the importation of clay from abroad weakens the local producer and leads to a decrease in output and inflation. Therefore, production and productivity should be high.

Due to raw material supply issues caused by the war, hundreds of factories ceased operations, and thousands of hectares of land remained uncultivated. As a result, the government should prioritize these issues, as a lack of peace increases the price of living by reducing output. AS