Ethiopian Central Bank Floats National Currency to Secure IMF Support
The Ethiopian central bank has allowed the national currency, the birr, to float as of this morning, in hopes of securing support from the International Monetary Fund (IMF) and making progress on the long-delayed debt restructuring.
The value of the birr against the US dollar has plummeted by 30%, reaching 74.73 per greenback.
The country, which has been struggling with rampant inflation and a chronic shortage of foreign currencies, became the third economy on the continent to default on its public debt at the end of last year.
Ethiopia is currently in talks with the IMF to establish a new loan program, following the abandonment of the previous program supported by the Fund in 2019 due to the conflict in the northern Tigray region. Negotiations resumed after a peace agreement was reached in November 2022.
The government's goal with these reforms is to secure a total of $10.7 billion in external financial aid from the IMF, the World Bank, and other international creditors.
For importers, who previously relied on the black market to obtain dollars, this is excellent news. From a global perspective, a real and market-determined exchange rate is a difficult but necessary step to address macroeconomic distortions.
However, for exporters to this country, this is very bad news. For Tunisia, exports to Ethiopia totaled 12.1 million Tunisian dinars during the first half of the year, compared to 28.8 million Tunisian dinars during the same period in 2023. This volatility highlights that Africa is not an easy market.
