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is also depicted on the deteriorating trade balance to percent of GDP trend of the country on figure 4. As in figure 4 after the devaluation of exchange rate in 1992, the trade balance has been deteriorating. One reason behind this can be referred back to figure 1 that shows the composition of commodities of the export is highly dominated by primary commodities.

Efforts made to correct trade balance deficit

An inward-oriented development strategy adopted by the country prior to the current government was characterized by long lived over valuation of the “Birr”, high tariff and non-tariff barriers as well taxation on exports. These policies had an influence on the trade balance directly or indirectly through their impacts on exports.

During the Imperial government of Ethiopia (IGE) three five-year development plans had been executed. The first five-year development plan (1957/58 – 1962/63) focused on import substitution development planning with a little attention to export promotion. In the second five-year development plan, an initial export sector promotion was attempted through setting a numeric share for agricultural exports to decline from 93.6 percent in 1962/63 to 72.3 percent in 1967/68 and manufactured exports to increase. Foreign trade got a great attention in the third five-year plan of the IGE. The decline in agricultural exports share was further supported through export diversification. Among others incentives such as profit tax holidays, minimizing barriers to export licenses, strengthening the chamber of commerce were set to encourage for non-traditional products exporters (Gemechu, D., 2004).

The aspiration of increasing manufactured exports was further propagated by the military government of Ethiopia (MGE). Designing a first ten-year development plan (1985/86 – 1994/95) after, the government aimed at reducing traditional export share from 73.5 percent in 1985/86 to 53.2 percent in 1994/95. In the same period projection other sectors majorly the manufactured sectors export share was aimed to increase from 26.5 percent to 46.8 percent. Measures such as favorable tax provision, improving quality of exports, provision of world market prices, tariffs revision, export subsidies and so forth were practiced to attain objectives in the international trade sector (Gemechu, D., 2004).

Never the less in both past regimes one component that lack among the incentives taken was the exchange rate value. As different theories of exchange rate explains, Appropriate exchange rate regime is a sufficient condition among other things such as export diversification, luxurious commodities expenditure reduction, channeling of foreign aids towards long term production instead of consumption, etc, to have to promote export of a country. The ‘Washington Consensus’ [9] by John Williamson in 1989 on exchange rate regime of number (5) pointed out also “ Sufficiently competitive exchange rates which induce a rapid growth in non-traditional exports” is among other measures to perform out ward development strategy through export promotion (Priewe J., and Herr, H., 2005, p.2-3 ).

Accordingly when the current government took over, the first thing it proclaimed was its development strategy being an out ward oriented one. As the Structural Adjustment Program (SAP) was famously prescribed by the international