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ETHIOPIA'S BIRR DROPS 30% AS CENTRAL BANK FLOATS CURRENCY

By Dawit Endeshaw
July 29, 202410:56 AM GMT+2Updated 3 hours ago
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A man counts Ethiopia's birr notes in Merkato, one of Africa's biggest open air
market, in Addis Ababa, Ethiopia, April 25, 2024. REUTERS/Tiksa Negeri/File
Photo Purchase Licensing Rights, opens new tab
 * Summary
 * Companies

 * Central bank removes restrictions on FX trading
 * Birr currency falls 30% against dollar
 * Floatation of currency key to securing IMF support

ADDIS ABABA, July 29 (Reuters) - Ethiopia's central bank floated the country's
birr currency on Monday, a move it hopes will secure International Monetary Fund
(IMF) support and make progress on a long-delayed debt restructuring.
The birr's value against the U.S. dollar slumped by 30% to 74.73 per dollar, the
country's biggest lender, Commercial Bank of Ethiopia said. The currency had
been trading at 57.48 birr to the dollar on Friday.
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The Horn of Africa nation, which has been struggling with soaring inflation and
chronic foreign currency shortages, became the third economy on the continent in
as many years to default on its government debt late last year.
It has been in talks with the IMF to establish a new lending programme, after
the last fund-supported programme agreed in 2019 was abandoned due to conflict
in the northern region of Tigray. Negotiations resumed after a November 2022
peace deal.
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The central bank said in a statement on the float that "banks are henceforth
allowed to buy and sell foreign currencies from/to their clients and among
themselves at freely negotiated rates" and that it would only make "limited
interventions" in the FX markets going forward.
The reforms were initially announced by Prime Minister Abiy Ahmed late on
Sunday.
Central bank governor Mamo Mihretu said in an online video that, as part of the
reforms, Ethiopia would get $10.7 billion in external financing help from the
IMF, the World Bank, and other creditors.

"The IMF and World Bank are both providing exceptional and front-loaded funding
support that will be among their highest such allocations in the African
continent," he said.
Importers, who had been relying on the black market to secure dollars, expressed
relief at the central bank's move.
"Now I don't need to go to black market to buy or sell dollars. It is now a
market-based foreign exchange regime, so (we) will buy or sell based on the
legal channels," said a businessman in the capital Addis Ababa, who did not want
to be named.

There was no immediate comment from the IMF. Ethiopia's main $1 billion dollar
government bond fell fractionally on Monday having reacted its highest level
since early 2022 in recent weeks.
The United States welcomed the shift to a market-determined foreign exchange
rate.
"Market-based FX is a difficult, but necessary step for Ethiopia to address
macroeconomic distortions," the U.S embassy in Addis Ababa posted on social
media platform X.

Ethiopia, which is Africa's second-most populous country, requested a debt
restructuring under the Group of 20's Common Framework process in early 2021,
but progress was slowed by the civil war in Tigray.
The government has already unveiled some economic reforms, which analysts say
are linked to the negotiations for a new IMF reform program, including the
adoption of an interest rate-based monetary policy earlier this month.

Get the latest news and expert analysis about the state of the global economy
with Reuters Econ World. Sign up here.

Reporting by Dawit Endeshaw; Additional reporting by George Obulutsa in Nairobi
and Marc Jones in London; Writing by Duncan Miriri; Editing by Ros Russell

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