Ethiopian currency falls by 30% in one day - IMF forces country

[Khaem]

 

[Khaem]

The value of Ethiopia's currency has fallen by 30% against the US dollar after the government relaxed currency restrictions, one the country's biggest banks, the Commercial Bank of Ethiopia, has said.

The government reversed its long-standing policy of fixing the exchange rate in a bid to secure a loan of $10.7bn (£8.3bn) from the International Monetary (IMF) and World Bank.

Some Ethiopians have received the news with apprehension fearing that it will lead to a sharp rise in the cost of living at a time when inflation is already high.

The country has been struggling with chronic foreign currency shortages particularly in recent years.

The economy has suffered due to a brutal two-year civil war in the northern Tigray region, which ended in 2022, and ongoing conflicts in other regions, making it difficult for the country to attract much needed foreign investment.

Under the new policy announced by the central bank, the value of the Ethiopian currency - the birr - will be set by the market.

It comes as negotiations between the government and the IMF reach their final stage.

Analysts say the IMF has been calling for a series of reforms, including floating the currency, before it agrees to a bailout, Reuters news agency reports.

The negotiations also involve restructuring Ethiopia's external debt of around $28bn.

In a statement on Monday morning, the head of the central bank, Mamo Mehretu, said the country was immediately introducing a competitive, market-based foreign exchange regime, in a major policy shift in half a century.

The change allows commercial banks to buy and sell foreign currencies at negotiated prices.

Previous similar devaluations of the birr were followed by sharp spikes in the cost of food and other items - especially items imported from abroad.

To cushion the transition and stave off inflation and market instability, Ethiopia's government has pledged to provide subsidies on essential goods such as petrol as well as extra help for low-income workers.

One of the reasons cited by the central bank for the new policy was the flourishing of an "unanchored" parallel market, where, up until the policy change, the dollar was costing double the official rate.

Importers were often forced to turn to the parallel market to purchase dollars because of a chronic shortage of foreign currency, meaning that some of the higher costs have already been priced in.

But there are fears that the value of the birr might now continue to fall below the rate it was fetching on the parallel market.

 

[Avalanche]

Itoobiya ha burburto

 

[Khaem]

The World Bank's board has approved $1.5 billion in financing for its first ever budget support lending to Ethiopia, the lender said late on Tuesday as the east African nation tries to push ahead with a long-running debt restructuring.

Africa's second-most populous country secured a four-year, $3.4 billion programme from the International Monetary Fund on Monday, hours after its central bank floated its birr currency, paving the way for its debt overhaul to move forward.

Read: Ethiopia adopts market-based foreign exchange system, devalues birr

The World Bank will provide a grant of $1 billion and another $500 million in a low interest credit line, part of the first ever direct budgetary support facility provided to Ethiopia, the global lender said.

"This policy operation supports home-grown reforms that will ultimately help the country transition to a more inclusive economy that allows the private sector to contribute more strongly to growth," the World Bank said.

The bank plans to "provide around $6 billion in new commitments over the next three fiscal years and support economic reforms through fast-disbursing budget support," it said.


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World Bank approves $1.5b in financing for Ethiopia
Wednesday July 31 2024

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A general view of the skyline of Addis Ababa, Ethiopia on November 3, 2021. PHOTO | REUTERS

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The World Bank's board has approved $1.5 billion in financing for its first ever budget support lending to Ethiopia, the lender said late on Tuesday as the east African nation tries to push ahead with a long-running debt restructuring.

Africa's second-most populous country secured a four-year, $3.4 billion programme from the International Monetary Fund on Monday, hours after its central bank floated its birr currency, paving the way for its debt overhaul to move forward.

Read: Ethiopia adopts market-based foreign exchange system, devalues birr

The World Bank will provide a grant of $1 billion and another $500 million in a low interest credit line, part of the first ever direct budgetary support facility provided to Ethiopia, the global lender said.

"This policy operation supports home-grown reforms that will ultimately help the country transition to a more inclusive economy that allows the private sector to contribute more strongly to growth," the World Bank said.

The bank plans to "provide around $6 billion in new commitments over the next three fiscal years and support economic reforms through fast-disbursing budget support," it said.

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The funding is part of a $10.7 billion financing package by the IMF, World Bank and other creditors, according to Ethiopian officials.

The financial support, however, was conditional on the government implementing significant economic reforms, including the liberalisation of the foreign currency market.

Ethiopia's birr was down 3% against the dollar early on Wednesday, trading at 77.13.

It was little changed on Tuesday after tumbling 30% on the day it was floated on Monday.

Read: Ethiopia secures $1.5bn debt relief

Ethiopia sought to restructure its sovereign debt in 2021, under the G20 Common Framework initiative to offer relief to developing nations, but progress was slowed by a civil war in the northern region of Tigray that ended the following year.

Ethiopia's winding debt restructuring mirrors that of Chad and Zambia which completed their debt overhauls under the Common Framework.

Ghana, another African country saddled with high debt, is nearing the finish line of its own restructuring under the initiative.

Ethiopia's development partners have welcomed its move to a market-based foreign exchange rate, but some analysts have said the move could drive up inflation and the cost of living, especially for its poorest residents.

The country of 126.5 million people also faces a number of other challenges, including the impact of climate change and the post-war reconstruction of Tigray.

 

[mah14]

 

[Garsoore]

Bad days ahead for DDS business owners

 

[Khaem]

 

[AraragiKoyomi]

Bad days ahead for DDS business owners

They should switch to dollars

 

[tyrannicalmanager]

IMF and the Worldbank finally killing the right country

 

[AraragiKoyomi]

The loans will be used to fight FANO. Its not gonna go to building all the damages that happened in Tigray region. Somalis should brace themselves. Things are only going to get worse

 

[Khaem]

The loans will be used to fight FANO. Its not gonna go to building all the damages that happened in Tigray region. Somalis should brace themselves. Things are only going to get worse

Yes all this lacag is going straight to arms

 

[AraragiKoyomi]

Yes all this lacag is going straight to arms

But I saw this video on here explaining that they need to make a profit otherwise they will be in a debt spiral. Also their currency devalued with 30%. I read that the IMF want it devalued to 60%.

 

[Internet Nomad]

Based Economic Hitman

 

[Khaem]

But I saw this video on here explaining that they need to make a profit otherwise they will be in a debt spiral. Also their currency devalued with 30%. I read that the IMF want it devalued to 60%.

What will the imf and world bank org gain from devaluing the Birr by so much?

Spoiler

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[AraragiKoyomi]

What will the imf and world bank org gain from devaluing the Birr by so much?

Spoiler

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I have no idea. I thought the west wanted to keep Ethiopia intact

 

[mah14]

What is really the benefit of the International Monetary Fund? It is the same fund that deceived Siad Barre and drowned him in debt, and many other countries had the same thing happen to them.

 

[Khaem]

I have no idea. I thought the west wanted to keep Ethiopia intact

Seems the interests of the globalist financiers have changed, we don't know

 

[Khaem]

What is really the benefit of the International Monetary Fund? It is the same fund that deceived Siad Barre and drowned him in debt, and many other countries had the same thing happen to them.

It's a way to enslave African states. Much of Asia escaped the claws of the Globalists through being authoritarian protectionist states. But Africans were tol busy trying to make "Democratic Modern" countries in the 60s-80s now look at us.

 

[Midas]

A lot of the economic hitman stuff is b.s . If your a country who managed to f*ck themselves over with debt . Why would you expect anybody to give you money for free? There is obviously going to be conditions.

 

[Three Moons]

Spoiler: Aww so sad

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