The Ethiopian government announced a significant shift in its economic policy on Monday, easing long-standing foreign exchange restrictions.
This move is seen as a crucial step towards securing a much-needed bailout package from international lenders.
The National Bank of Ethiopia (NBE) declared that the country will adopt a competitive market-based exchange rate system.
This means banks will now be allowed to buy and sell foreign currencies at freely negotiated rates.
As a direct result of this policy change, the value of the Ethiopian birr plummeted by approximately 30 percent against the US dollar.
Ethiopia has been grappling with a severe economic crisis, characterized by high inflation, a shortage of foreign currency reserves, and a mounting external debt of around $28 billion.
The country’s hopes for economic recovery hinge on a substantial $10.5 billion bailout package from international lenders, including the International Monetary Fund (IMF).
However, negotiations for this financial lifeline have been protracted and complex.
Analysts believe that the IMF has been pressing for substantial economic reforms, including the liberalization of the foreign exchange market, as a precondition for the bailout.
The Ethiopian government’s decision to loosen currency controls aligns with these demands.