Ethiopia’s central bank announced on Monday that it was easing restrictions on its foreign exchange regime, a move that sent the value of the local currency tumbling by about 30 percent.
The major reform was unveiled as the deeply indebted country awaits a multibillion-dollar deal for crucial funding from the International Monetary Fund after long and arduous negotiations.
There was widespread speculation that Ethiopia, whose economy is tightly controlled by the state, would have to devalue its currency, the birr, as a condition for IMF assistance.
The National Bank of Ethiopia announced a series of foreign exchange reforms, which it said included “significant new policy changes”.
The first measure was a “transition to a market-based trading regime,” the NBE said in a statement.
“Banks are henceforth allowed to buy and sell foreign currencies from/to their customers and among themselves at freely negotiable rates, and with the NBE making only limited interventions to support the market in its early days and if warranted by miscreants market conditions. he said.
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The US dollar was buying at 74.73 birr and selling at 76.23, top Commercial Bank of Ethiopia said in a statement published on X. On Friday, the buy price was 57.48 and the sell price was 58.64.
“FX Supply Boost”
Until now, the exchange rate for the birr, a non-convertible and non-exportable currency, was set daily by the NBE.
The central bank also announced on Monday that it would allow foreign exchange to be held by exporters and commercial banks “thereby substantially enhancing foreign exchange supplies to the private sector”.
Ethiopia’s Prime Minister Abiy Ahmed said earlier this month that he expected about $10.5 billion in financial aid over the next few years once the country completes negotiations with international lenders.
The Horn of Africa nation, hit in recent years by multiple armed conflicts, the Covid pandemic and climate shocks, has been involved in protracted talks seeking to secure a support program from the IMF.
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Ethiopia has about $28 billion in external debt and is also struggling with high inflation and a lack of foreign exchange reserves.
The landlocked country’s credit rating was downgraded to partial default in December by international agency Fitch after it missed a $33 million coupon payment on a Eurobond.
The two-year conflict in the northern Tigray region that ended in November 2022 has led to the suspension of many development aid and budget assistance programs.
When he took office in 2018, Abiy pledged to launch reforms of Ethiopia’s closed and state-dominated economy, but little has changed since then.
Source: AFP