The Tigray War and Its Monetary Consequences

A war that was many things, including a monetary event

The Tigray war began on the night of 3 November 2020 with a TPLF attack on the federal Northern Command, and ended (formally) with the Pretoria Peace Agreement of 2 November 2022. In between, by the most credible estimates, somewhere between 300,000 and 600,000 people died from war-related causes — combat deaths, famine-related deaths in the federal blockade of Tigray, deaths from collapse of medical services, and the cascading consequences of the destruction of agricultural infrastructure in the affected regions.¹ Approximately 90 percent of Tigray’s health facilities were damaged or destroyed.² An estimated 2.5 million people were displaced. The territorial integrity of the country survived; the human cost was catastrophic.

This article makes no pretence of being the principal account of the war. The military history, the political history, the human-rights history, the negotiations history — these are each subjects for which other writers and other publications are better placed. What this series can contribute is the monetary dimension: how the war was paid for, how the war’s economic consequences propagated through the monetary system, and how the cumulative pressure of the war’s costs made the 2024 float effectively unavoidable.

The argument is that the Tigray war was, among the many things it was, the external shock that finally broke the GTP-era monetary architecture. The accumulating vulnerabilities of the previous decade — examined in articles 12, 14, 15, and 17 — were of a kind that required only a sufficient external shock to push them into open crisis. The war was the shock. The float was the consequence. The bill is, in 2026, still being paid.

The fiscal cost

The direct fiscal cost of the war is documented in several overlapping estimates that, despite their methodological differences, agree on the broad order of magnitude.

The Ethiopian government’s own estimate, articulated by Finance Minister Ahmed Shide in late 2022, was that the reconstruction of war-affected areas would require approximately $20 billion — roughly one-fifth of Ethiopia’s pre-war GDP.³ The figure does not include the actual cost of conducting the war (military expenditure, displaced-population support, lost output in the conflict areas), which was substantially larger again. The combined direct fiscal cost of conducting and ending the war was, by reasonable estimates, in the range of $25–35 billion over the period 2020–2024.⁴

The cumulative cost, including indirect effects, is larger still. The Oxford Initiative on Peace and Recovery in Ethiopia, in its 2024 analysis, estimated that by 2027 cumulative economic losses (versus a no-conflict counterfactual) would reach approximately $125 billion — making the Ethiopian economy by 2027 approximately 19 percent smaller than it would have been without the conflict.⁵ The 2024 study by Ethiopian researchers in cooperation with international partners estimated that Ethiopia lost 7.5 percent of GDP directly to the conflict, with upward adjustments suggesting losses may have been as high as 12 percent of GDP.⁶

These are not small numbers. For comparison, Ethiopia’s total annual goods exports in the pre-war period were approximately $3.5 billion. The reconstruction cost alone is roughly six years of total goods exports.

How the war was financed

The financing mechanism for the war followed the pattern article 18 described. The fiscal gap was filled, in significant part, through central-bank advances to the federal government. Money supply growth accelerated through 2021 and 2022. The 2020 birr-note redesign, which had been announced in 2019 as an anti-counterfeit measure, was rolled out during the war period and became, in effect, a wartime monetary operation that demonetised existing notes and forced their conversion into new issuance.⁷

The external financing landscape was, simultaneously, contracting. The US suspended Ethiopia from the African Growth and Opportunity Act (AGOA) in January 2022, citing human-rights concerns related to the war; the suspension removed duty-free access to the US market for Ethiopian apparel exports and was a substantial blow to the industrial-park strategy that the GTP-era model had counted on.⁸ Major Western donors — the EU, the US, the UK — paused or reduced their development assistance during the war. The World Bank IDA programme continued but at reduced effective level. The IMF was unable to launch a new programme during the conflict.

The combined effect was a substantial deterioration of the external financing position at exactly the moment when the fiscal need was greatest. The country’s foreign-exchange reserves, which had been on a declining trend through 2018–20, fell sharply during the war. By 2023, official reserves were probably below two months of imports — a level at which any major shock could have triggered an outright payments crisis.⁹

How the war propagated through the monetary system

The monetary consequences of the war propagated through several distinct channels.

The inflation channel. Money-supply expansion to fund the war, combined with disruption of agricultural production in conflict-affected areas, drove inflation sharply higher. Ethiopian official inflation, which had been running at approximately 19 percent in November 2020 at the start of the war, accelerated to 33 percent by mid-2022 and remained above 30 percent through much of 2023.¹⁰ Food inflation was higher still, peaking above 40 percent in some months — a major hardship for the population in a country where food represents more than half of the average household’s expenditure.

The exchange-rate channel. The official birr/USD rate, which had been at approximately 36 at the start of the war, was depreciated steadily through the conflict to approximately 53 by mid-2024. The parallel rate, meanwhile, accelerated to over 100 birr per dollar by 2023, then to approximately 120 by mid-2024.¹¹ The parallel premium reached more than 100 percent, the highest level in the post-Derg period.

The debt-sustainability channel. The combination of new wartime external borrowing, the deterioration of existing debt service capacity, and the depreciation of the birr against the dollar all increased the country’s external debt burden expressed in birr terms. The Eurobond default of December 2023 was, in this sense, the breaking point of the debt-sustainability deterioration that the war had accelerated. As discussed in article 17, the default was framed by the government as a strategic decision under the Common Framework process; in macroeconomic substance, it was the inevitable consequence of a debt position that the war had made unsustainable.

The reserve-position channel. Foreign-exchange reserves declined through the war period to dangerously low levels. By 2023, the IMF was characterising Ethiopia’s external position as having reached “critical levels,” requiring “urgent” action.¹² The 2024 float was, in part, the response to this reserve position: the float was designed to attract the formal capture of remittance and export flows that had been bleeding to the parallel market, thereby rebuilding reserves.

The wartime monetary operations

Two specific wartime monetary operations deserve direct mention because they illustrate the texture of the period.

The first is the 2020 birr-note redesign. Announced in 2019 as an anti-counterfeit measure, the new notes were issued from September 2020 — just before the war began — and existing notes had to be exchanged through banks within a specified period. The operation was, in part, a normal anti-counterfeit modernisation; many countries periodically redesign banknotes for this purpose. But the timing made it also a wartime monetary operation: in conflict-affected areas, the exchange process was disrupted, with many residents unable to access banks within the exchange window, with the result that some held-cash savings were effectively destroyed. The note redesign also captured a portion of the parallel-market currency holdings, which were demonetised by the exchange.¹³

The second is the import restrictions of October 2022. The Ethiopian government banned imports of dozens of products including cars, liquor, and household goods, citing acute foreign-currency shortages.¹⁴ This was, formally, an emergency measure to conserve foreign exchange. In monetary terms, it was an admission that the official forex regime could no longer fund even basic import demand at the official rate. The restriction worked to compress imports but at the cost of further suppressing economic activity and pushing more demand into parallel channels.

The post-war reckoning

The Pretoria Peace Agreement of 2 November 2022 ended formal hostilities and laid the groundwork for the political stabilisation that followed. But the monetary disorder that the war had accelerated could not be ended by a peace agreement. The inflation continued. The parallel premium continued. The Eurobond default came in December 2023. The IMF programme was negotiated through the first half of 2024 and approved on 29 July 2024. The float was announced the same day.

In the broader political-economy sense, the post-war reckoning was concentrated in the year 2024. The first half of the year was occupied with the political and technical preparation for the float and the IMF programme. The second half saw the float itself, the initial post-float adjustment, the early reviews under the ECF, and the beginning of the new monetary regime.

The series’s argument, developed in the next two articles, is that the 2024 reforms were necessary responses to conditions that the war had pushed past the point of sustainability, but that the reforms were undertaken under conditions much worse than they would have been if they had been undertaken earlier. The cost of the deferral, examined in article 19, was paid in the worse terms on which the reform had to be conducted in 2024 — a more devalued exchange rate, a more accumulated debt burden, a more eroded reserve position, a more inflation-stressed population.

The honest counter-argument

The strongest version of the counter-argument to this article’s framing is that the war was not a monetary event, that to focus on its monetary consequences is to slight its human costs, and that any honest accounting of the period must put the casualties and the human suffering ahead of the macroeconomic statistics. The argument has force: a series that turns the Tigray war primarily into a story about exchange rates and money supply growth is, in its emphasis, missing what the war was actually about.

The series’s reply is that the casualties and the monetary consequences are not separable in the way the counter-argument suggests. The famine deaths in besieged Tigray were, in part, the consequence of a federal blockade whose imposition was a fiscal as much as a military choice — the blockade was a way of conducting the war at lower fiscal cost than the alternative of full-scale occupation. The inflation that taxed the broader Ethiopian population for the war was a regressive tax that fell hardest on the poor, who were already bearing the cost of food-price increases. The reserve depletion that contributed to the 2024 float was, in significant part, depleted by financing the war. The human costs and the monetary costs are interwoven, not parallel.

The article’s framing of the war as a monetary event is, in this sense, not a substitute for the human-rights accounting. It is a complement — adding a dimension that the human-rights accounting alone does not cover. The 600,000 dead in Tigray are not honoured by leaving the monetary cost out of the ledger; they are dishonoured by treating the war as if it had no economic dimension that the country is still paying for and will continue to pay for.

The next article turns to the moment when the monetary cost became impossible to defer further — the 29 July 2024 float.

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Footnotes

1. “Tigray war,” Wikipedia, https://en.wikipedia.org/wiki/Tigray_war. Casualty estimates vary widely; the 300,000–600,000 range reflects the consensus of major sources including Belgian academic research and Ethiopian government figures. ↩

2. Al Jazeera, “One year on, peace holds in Tigray,” November 2023; WHO situation reports on Tigray health system, 2021–2023. ↩

3. “Tigray war,” Wikipedia, citing Finance Minister Ahmed Shide’s estimate; Al Jazeera, November 2023; The New Humanitarian, “Weighed down by war and drought,” April 2024. ↩

4. Conflict Recovery Could Require USD 44 Billion in Five Years, Study Reveals, The Reporter Ethiopia, June 2024. ↩

5. Oxford Initiative on Peace and Recovery in Ethiopia, “The Costs of Ethiopia’s Internal Conflicts between 2020 and 2022,” https://www.ethiopiarecovery.ox.ac.uk/costsofconflicts/. ↩

6. The Reporter Ethiopia, “Conflict Recovery Could Require USD 44 Billion In Five Years,” June 2024. ↩

7. National Bank of Ethiopia, “New Birr Notes Launch,” announcement, September 2020; for the wartime aspect, see Mehari Taddele Maru, “Ethiopia’s Monetary Reform in Wartime,” African Arguments, December 2020. ↩

8. Office of the United States Trade Representative, AGOA Country Designations, https://ustr.gov/issue-areas/trade-development/african-growth-and-opportunity-act-agoa. ↩

9. International Monetary Fund, “Ethiopia: Request for an Arrangement Under the Extended Credit Facility,” IMF Country Report 24/241 (July 2024), pre-program reserve position. ↩

10. World Bank, “Inflation, consumer prices (annual %) — Ethiopia,” 2020–2023 series; Ethiopian Statistical Service monthly CPI releases. ↩

11. NBE exchange-rate history and parallel-market data summarised in Addis Standard, “Birr in Freefall,” March 2026. ↩

12. IMF Country Report 24/241. ↩

13. Mehari Taddele Maru, “Ethiopia’s Monetary Reform in Wartime.” ↩

14. CNBC Africa, “Key events in Ethiopia’s journey towards debt restructuring,” 2026: “October 2022: The government in Addis Ababa bans the import of dozens of products including cars, liquor and household goods due to acute foreign currency shortages.” ↩