Addis Ababa, Ethiopia – July 20, 2025 The International Monetary Fund has renewed calls for Ethiopia to accelerate foreign exchange market liberalization, warning that prolonged distortions between official and parallel market rates threaten to undermine macroeconomic stability and investor confidence.
The appeal comes as the spread between the official exchange rate and black market quotations has widened to a range of 15–20%, despite a moderate depreciation by the National Bank of Ethiopia (NBE) in early June. While authorities have taken initial steps toward streamlining FX access and limiting administrative rationing, capital account restrictions remain largely intact, constraining inflows and encouraging illicit trade routes.
“Distorted FX Pricing Is Hurting Trade Recovery”
Importers and exporters continue to face challenges in sourcing hard currency through formal channels, with transaction delays and prioritization schemes causing friction across sectors from manufacturing to retail. The IMF has advised that a phased, market-driven realignment of the exchange rate would narrow arbitrage gaps, improve reserve accumulation, and support export competitiveness.
Reserves Under Pressure Despite IMF Inflows
Gross international reserves remain thin at approximately $2.1 billion covering less than 1.5 months of imports even after the recent $262 million IMF disbursement. Analysts warn that Ethiopia’s ability to honor external obligations and stabilize the birr hinges on FX market reform and broader capital account modernization.
Currency Devaluation Remains Politically Fraught
While liberalization could unlock greater donor and FDI flows in the long term, the near-term impact on inflation and public sentiment has deterred policymakers from moving aggressively. A sudden devaluation could trigger price shocks in a country already grappling with 20%+ inflation, especially on fuel, food, and medicines.
Donor Fatigue and Delayed Privatizations Add to Headwinds
The IMF’s latest report points to reform slippage risks, including stalled state asset sales and weak follow-through on FX policy commitments. With donor appetite waning in the absence of structural reform, Ethiopia faces narrowing external financing options unless it reboots market confidence.
The National Bank has yet to announce a concrete timetable for FX liberalization, but observers suggest incremental devaluation and eventual auction-based rate determination may follow the path used in Egypt and Nigeria. Whether Ethiopia can sustain this delicate balance without triggering economic volatility remains the key question heading into the next review cycle.