Ethiopia operates a managed exchange rate for the birr, whose official value to the dollar is about half the black market rate.
Speculation that the birr currency would be devalued is “completely unfounded”, Ethiopia’s junior finance minister says as the country seeks an International Monetary Fund (IMF) loan after agreeing to a ceasefire in its two-year civil war.
The birr currently trades at 53.42 to the United States dollar, according to Refinitiv Eikon data, but it is reportedly worth 96 to 97 on the black market, and the country has long experienced foreign exchange shortages.
“There is widespread rumor that devaluation is in the making,” Eyob Tekalign, state minister in the Ministry of Finance, said on Twitter on Thursday. “This is just a rumor. Completely unfounded. A sensible macro reform is always our agenda but there should not be any concern about mere devaluation.”
There is widespread rumor that devaluation is in the making. This is just a rumor. Completely unfounded. A sensible macro reform is always our agenda but there should not be any concern about mere devaluation. @MoF_Ethiopia @ebczena @fanatelevision @EthioReporter @addis_fortune
— Eyob Tekalign Tolina(PhD) (@EyobTolina) January 19, 2023
Ethiopia operates a managed exchange rate for the birr, allowing it to depreciate gradually against the dollar. In 2020, the IMF recommended moving to a market-determined exchange rate to deal with an overvalued currency and foreign exchange shortages.
Africa’s second most populous country requested debt restructuring in early 2021, but progress was held up by a two-year civil war in its Tigray region.
Ethiopia’s government and the Tigray People’s Liberation Front, a rebel force-turned-political party, agreed on November 2 to stop fighting. The war displaced more than two million people and hurt the economy.
Its government has turned for help to the IMF, which requires debt relief commitments from a country’s creditors before it agrees to a loan programme.
Adopting a more flexible exchange rate is also often a stipulation of the IMF. For example, Egypt’s pound weakened after it moved to a more market-determined forex regime under the terms of an IMF programme.
“We’ve made it very clear we want to reform our forex regime,” Eyob told Reuters in an October interview, “so the exchange rate unification remains one important policy goal, but we are just doing it gradually.”