ADDIS ABABA — The National Bank of Ethiopia (NBE) has unveiled a sweeping set of
economic reforms, including a move to let market forces determine the value of the birr, as
part of a broader effort to address inflation and a severe shortage of foreign currency.
The announcement, made on Monday, signals a major shift in Ethiopia’s foreign exchange
policies and aims to bolster economic activity amidst growing international pressure.
The Ethiopian government, led by Prime Minister Abiy Ahmed, faces mounting demands
from the World Bank and the International Monetary Fund (IMF) to liberalize the currency
and enact vital reforms to access over $10 billion in new funding. The NBE’s decision is a
significant step toward meeting these conditions.
In its statement, the NBE detailed several key reforms. These include opening the stock
market to foreign investors, introducing non-bank foreign exchange bureaus for currency
transactions, and lifting restrictions on the amount of dollars that travelers can carry in and
out of the country.
“The reform introduces a competitive, market-based determination of the exchange rate
and addresses a long-standing distortion within the Ethiopian economy,” the NBE said.
“This is part of a broader economic reform package that will be implemented and
accelerated in the coming months.”
Following the lifting of trading restrictions, the birr depreciated sharply, falling 30 percent
against the dollar to 74.73 from 57.48 just three days prior, according to Reuters.
The NBE’s reform package, grounded in the country’s Home-Grown Economic Reform Plan
(HGER 2.0), seeks to restore macroeconomic stability, enhance private sector activity, and
promote sustainable growth.
“The new foreign exchange reforms include a transition to a market-based regime, where
banks will be permitted to trade foreign currencies with clients and among themselves at
negotiated rates, with limited initial intervention from the NBE,” the central bank stated.
Additionally, exporters and commercial banks will now retain foreign exchange earnings,
significantly boosting the supply of dollars available to the private sector.
The NBE has removed previous surrender requirements for exporters. Import restrictions
on 38 product categories have also been lifted, though capital outflows will continue to be
restricted.
The new policy also revises the rules for foreign exchange allocation by banks, which
previously operated on a waiting list system, and improves retention rules for exporters,
allowing them to keep 50 percent of their foreign currency earnings, up from 40 percent.
These measures mark a critical shift in Ethiopia’s economic strategy as the country
grapples with inflation and a currency crisis.
The NBE’s reforms represent a bold attempt to stabilize the economy and meet the
demands of international financial institutions.
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