Ethiopian Birr on the Brink of a Major Devaluation

While the Ethiopian government has been rejecting reports about currency devaluation, the Ethiopian Birr seems to be on the verge of a major devaluation.

Official exchange rate of the Ethiopian birr is 57 per one dollar. But in black market, Birr is trading at around 120 per dollar. But the government has been hesitant to depreciate birr value.

Since 2022, the government has been in talks with lending institutions especially IMF and World Bank for a bailout package. This month World Bank signed financing agreements with Ethiopia worth around $1.7 billion. But the main bailout package from IMF is still under consideration.

At the start of this month, IMF-Ethiopia talks held in Addis Ababa ended without any agreement. But the IMF delegation said that progress had been made and talks would resume later in April.

It is being speculated that Ethiopia might get a staff level agreement with IMF at the end of this month. But for that to happen, Ethiopia will be told to devalue its currency, birr. More than a month ago, Egypt had to devalue its pound before getting financial aid from the IMF.

The likely Ethiopian birr devaluation is going to lead to surge in inflation which has been a pain in the side of common man. Ethiopia is not left with many options except reaching an agreement with the IMF. Paris Club Creditors earlier this month extended deadline given to Ethiopia by three months. By June 2024, Ethiopia must sign agreement with IMF to retain debt payment suspension announced by Paris Club members last year. Reportedly Ethiopian Birr is likely to be devalued by around 20%.

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