The Ethiopian birr has fallen to a record low, even after the central bank poured roughly 2.2 billion dollars into the market this year to support the currency, without managing to stop the selling pressure. In last week's intervention, demand for dollars reached four times the amount the central bank offered. Since the start of the year, the birr has weakened about 3.2 percent to a record low of nearly 162 birr per dollar, making it the worst performer over the past year among the 23 African currencies tracked by Bloomberg. The Ethiopian currency has faced sustained pressure since the government devalued it under an International Monetary Fund-backed programme in 2024, while hopes that the currency would begin to stabilise have been further dented by the Iran war, which has pushed up fuel and fertiliser import costs and reduced remittances from Ethiopian workers in the Gulf states. Sarah Baynton-Glen, Africa economist at Standard Chartered, said Ethiopia's foreign currency shortage stems from a structural current account deficit, and because the country depends on fuel imports, the birr tends to come under more pressure when oil prices rise. There are also signs the currency could weaken further. On the informal street market in Addis Ababa, dollars are trading at around 180 birr per dollar, or about 15 percent above the official rate, reflecting tight foreign currency conditions in the system. Baynton-Glen expects the pace of the birr's depreciation to slow in the coming months and estimates it will be around 163 birr per dollar by the end of the year, but near-term pressure remains. Some commercial banks bid for dollars at rates as weak as 163 birr per dollar in the central bank auction on August 12, while foreign currency demand is likely to rise ahead of the Ethiopian New Year on September 11 because of increased letters of credit and imports, which could add pressure in the next dollar sale on August 26. Continued market intervention could also strain Ethiopia's foreign currency reserves, even though record gold export earnings have helped bolster the reserve base. The central bank has not disclosed reserve figures in dollar terms, saying only that reserves have risen to 20 times their pre-reform level in 2024, while the IMF estimated in July that Ethiopia holds about 5.9 billion dollars in reserves. Meanwhile, the government expects the budget deficit to widen in the fiscal year that began in July because of costs related to the impact of the Iran war, including fuel subsidies. David Cowan, chief Africa economist at Citigroup, is more pessimistic, expecting the birr to weaken to 185 to 195 birr per dollar by the end of the year because foreign currency demand still exceeds supply. However, he expects Ethiopian authorities to try to prevent the currency from breaching 200 birr per dollar.
Citigroup Inc.
Standard Chartered PLC