Ethiopia devalues currency by 15 per cent

The Ethiopian government has devalued the national currency by 15 per cent

The National Bank of Ethiopia (NBE) said the devaluation of the Birr would take effect on Wednesday.

Accordingly, the Birr will now exchange at 26.91 to the dollar, up from the previous 23.40.

The devaluation is the first since the 2010’s 20 per cent cut.

Export earnings

The NBE directive was announced by its vice governor and chief economist, Mr Yohannes Ayalew, at a press conference in Addis Ababa.

Mr Yohannes said the measure was to control the inflationary pressure and to boost export earnings which had hitherto stagnated.

“Since investment return is high in Ethiopia, the devaluation won’t cause an inflationary pressure and adversely affect import,” Mr Yohannes was quoted saying.

The devaluation is seen by economic players as helping to boost the Ethiopian export sector, which has experienced a sluggish outlook. It is also expected to reduce forex shortages and to ease the debt burden.

Ethiopia’s economic successes have been hailed by international finance outfits like the World Bank and the International Monetary Fund (IMF).

Inflationary pressure

The World Bank a year ago tasked Addis Ababa to devalue the Birr in one of its economic updates.

Ethiopia has operated a managed floating exchange rate regime since 1992. The Horn of Africa country is the continent’s biggest coffee exporter but its total export revenue has been falling short of targets for the last few years, owing to weaker commodity prices.

Ethiopia earned $2.9 billion in the 2017-2018 fiscal year, versus a target of $4 billion. The central bank said the it raised the main interest rate to 7 per cent from 5 per cent to stimulate savings as well as to counter inflation.

“The rate was pushed to mitigate the inflationary pressure that could arise from the devaluation,” according to Mr Yohannes.

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