Foreign Currency

Ethiopian currency dilemma threatens potential IMF bailout

The International Monetary Fund (IMF) is set to visit Ethiopia, where the government faces a critical decision that could determine the success of a bailout pivotal to the country’s debt restructuring. The pressing issue is whether to allow the national currency to depreciate, potentially causing inflation and societal instability.

The IMF’s visit to Addis Ababa is expected soon, following productive meetings in October. However, the upcoming visit has attracted investors’ attention, as Ethiopia’s official creditors have threatened to cancel a debt-servicing suspension deal if a preliminary agreement with the IMF is not reached within four months.

For years, the Ethiopian government has maintained the birr’s value against the dollar. Allowing the birr to depreciate could inflate the prices of imports like fuel and fertilizer. Currently, the government is negotiating with the IMF to borrow approximately $3.5 billion, with a similar amount from the World Bank.

With living costs already on the rise, the potential currency devaluation could further burden Ethiopians. Economist Irmgard Erasmus suggests a phased approach to the devaluation to avoid sudden inflationary shocks. She believes that foreign-exchange reforms will be a crucial aspect of the IMF negotiations.


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