On Monday, Ethiopia’s national currency, the birr, experienced a significant 30 percent decline against the U.S. dollar following the central bank’s decision to float the currency. This strategic move is part of Ethiopia’s efforts to secure support from the International Monetary Fund (IMF) and facilitate advanced debt restructuring.
The country has been facing severe economic challenges, including high inflation and a shortage of foreign currency, which led to a government debt default last year. The central bank’s new policy allows banks to trade foreign currencies with minimal intervention, a change anticipated to stabilize the economy.
Negotiations with the IMF, which had been stalled, resumed after a peace agreement was reached in Tigray in 2022. Prime Minister Abiy Ahmed announced the currency reforms, which are expected to pave the way for $10.7 billion in external financing from the IMF, World Bank, and other creditors.
The reform has been positively received by importers, as it reduces their dependence on the black market for dollars. The United States has expressed support for Ethiopia’s transition to a market-determined exchange rate, viewing it as essential for addressing the country’s economic challenges.
Ethiopia initially requested debt restructuring in 2021, but progress was hindered by the conflict in Tigray. With the recent peace deal, the country is now poised to advance its economic recovery plans.
Main Image: CNBC Africa
