If Ethiopia can spend about $2.2 billion this year trying to support its weakening currency, but the intervention has so far failed to stop the birr from sliding to record lows.
- Ethiopia spent $2.2 billion this year to support its currency, but the birr still hit record lows, falling 3.2% against the dollar.
- Rising oil prices and increased import costs have intensified pressure on the birr, with demand for dollars outpacing central bank supply.
- A growing gap exists between official and black-market exchange rates, where the dollar trades for about 180 birr in Addis Ababa.
- The currency faces further risk as foreign currency demand rises before Ethiopia’s New Year and as businesses seek to finance imports.
The birr has fallen 3.2% against the dollar this year to nearly 162 per dollar, making it the weakest-performing currency over the past year among 23 African currencies tracked by Bloomberg.
The pressure has intensified as higher oil prices increase Ethiopia’s import costs and reduce the availability of foreign currency.
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But Reserves faces fresh pressure
The central bank’s interventions could also reduce Ethiopia’s foreign-exchange reserves, even as the country has benefited from record gold exports.
The central bank has not disclosed its reserves in dollar terms, but an IMF report in July estimated them at about $5.9 billion.
Meanwhile, the government expects a wider budget deficit in the fiscal year that began in July, partly because of additional spending on fuel subsidies.