The birr is no longer fiction

The currency went, the IMF came, and the inflation followed

On 29 July 2024, the National Bank of Ethiopia abandons fifty years of fixed-exchange-rate policy. Within ten days, the birr depreciates against the dollar by approximately 100 percent. The IMF and World Bank commit $20 billion. By April 2026, the birr trades at 177 per dollar — a cumulative depreciation of 490 percent since Abiy took office. The macroeconomic stabilisation is the federal-government’s principal economic-policy achievement of the post-war period and is, in operational reality, the conversion of the war’s accumulated economic costs into permanent welfare losses for the federal-government’s wage-earning constituencies.

Filed mid-April 2026

The Ethiopian birr had been a fixed-exchange-rate currency since 1949. Through the Imperial period, through the Derg, through the EPRDF era under Meles Zenawi and Hailemariam Desalegn, and through the first six years of Abiy’s premiership, the National Bank of Ethiopia (NBE) had maintained an officially-managed exchange rate that, during periods of significant external pressure, had been adjusted through periodic devaluations rather than through continuous market-determined movement. The system had produced, by the early 2020s, the structural features that characterise managed-exchange-rate regimes in fiscally constrained developing economies: an official rate substantially overvalued against the currency’s market-clearing level, a parallel (informal) market operating at a substantially weaker rate, foreign-exchange shortages at the official rate, rationing of foreign-exchange allocations to favoured importers and federal-government priorities, and a chronic distortion of the relative-price structure that constrained tradable-goods production while subsidising non-tradable consumption.

By early 2024, the system was operationally exhausted. The official rate had moved from approximately 27 birr to the dollar in April 2018 (when Abiy took office) to approximately 57 birr to the dollar by early 2024 — a cumulative depreciation of roughly 110% over six years through periodic managed devaluation. The parallel-market rate, however, had moved much further: by spring 2024, the parallel rate was 110–118 birr to the dollar, approximately twice the official rate. The implied premium of the parallel rate over the official rate — approximately 100% — was, by international macroeconomic standards, structural evidence that the official rate was no longer sustainable as a guide to market-clearing exchange-rate values. The federal government, through 2022 and 2023, had been negotiating an IMF Extended Credit Facility (ECF) programme that was, as a condition of IMF lending, expected to require substantial exchange-rate liberalisation.

The macroeconomic context for the IMF negotiation was severe. Ethiopia’s external debt service had become unsustainable through 2022 and 2023; the federal government had defaulted on a Eurobond payment on 11 December 2023, becoming the third African state during the 2020s to enter sovereign default. Ethiopia’s official foreign-exchange reserves, by mid-2024, were sufficient to cover only approximately one month of imports — substantially below the three-month threshold conventionally considered the minimum for currency stability. Inflation, which had peaked at 33.8% on a year-over-year basis in late 2022 during the war’s peak period, had declined through 2023 and into 2024 but remained, at approximately 20%, substantially above the federal-government’s stated target. The Tigray-war-related fiscal costs — estimated by various analyses at 5–10% of pre-war GDP, depending on counting methodology — had been absorbed substantially through monetisation of fiscal deficits, which had been the principal driver of the inflation. The macroeconomic stabilisation that the IMF programme would require depended on three components: exchange-rate liberalisation (to restore relative-price functioning), fiscal consolidation (to reduce the monetisation requirement), and debt restructuring (to manage the unsustainable external obligations).

On 25 July 2024, the IMF Executive Board approved a four-year, $3.4 billion Extended Credit Facility programme for Ethiopia. The programme’s initial disbursement was approximately $1 billion. Concurrent commitments from the World Bank totalled approximately $16.6 billion over three years, organised across infrastructure, education, health, and budget-support components. Additional bilateral commitments from the European Investment Bank, the African Development Bank, and various bilateral donors raised the total committed external financing for Ethiopia in the immediate post-programme period to approximately $20 billion over the medium term. The conditions associated with the IMF programme included the exchange-rate liberalisation, fiscal consolidation through reduced public expenditure and tax-revenue expansion, monetary policy tightening, sovereign debt restructuring (subsequently negotiated with private and official bondholders through 2024 and into 2025), and structural reforms in state-owned enterprises and the banking sector.

On 29 July 2024 — four days after the IMF Board approval — the National Bank of Ethiopia announced that it was abandoning the fixed exchange-rate regime and allowing the birr to float to market-determined values. The announcement was, in technical macroeconomic terms, the moment at which the fifty-year-old managed exchange rate system ended. The operational implementation, through early August 2024, was the rapid depreciation of the birr to its market-clearing level. Within ten days of the announcement, the birr had depreciated from the pre-float official rate of approximately 57 birr to the dollar to approximately 112 birr to the dollar — a depreciation of roughly 95% in two weeks. The parallel market that had been operating at 110–118 birr to the dollar before the float effectively merged with the official market within the same period, eliminating the structural premium that had characterised the system for years. [Wikipedia, “Premiership of Abiy Ahmed,” accessed June 2026, https://en.wikipedia.org/wiki/Premiership_of_Abiy_Ahmed]

The depreciation continued through 2024 and into 2025, although at substantially slower rates than the initial post-float adjustment. By October 2024, the birr had stabilised at approximately 100 birr to the dollar in spot transactions. By late 2025, the birr had drifted to approximately 150 birr to the dollar. By April 2026, the birr traded at approximately 177 birr to the dollar — a cumulative depreciation since April 2018 of approximately 490%. The cumulative depreciation against the dollar over the eight years of Abiy’s premiership represents one of the largest sustained depreciations of any African currency over a comparable period in the post-2000 era.

The macroeconomic effects of the depreciation, observable through 2024, 2025, and into 2026, have been across multiple dimensions.

Inflation. The relationship between exchange-rate depreciation and consumer-price inflation in Ethiopia, as documented by the Ethiopian Economics Association’s 2025 analysis, is statistically strong: the non-food inflation rate correlates with the birr-dollar exchange rate at approximately 0.71 over the 2018–2025 period. The post-float depreciation produced, predictably, a renewed acceleration of consumer-price inflation. The peak post-float inflation, in late 2024 and early 2025, reached approximately 22%. The federal-government’s monetary-tightening response, supported by the IMF programme’s conditions, produced gradual disinflation through 2025; inflation declined to single-digit levels in early 2026 and was reported at 11.7% on a year-over-year basis for April 2026. The disinflation pattern is consistent with what successful IMF stabilisation programmes typically produce in the medium term; the federal-government’s continued capacity to maintain disinflation through 2026 and into 2027 will depend on continued fiscal consolidation and on continued exchange-rate stability.

External-sector adjustment. The exchange-rate depreciation has produced substantial improvement in Ethiopia’s trade balance, primarily through the boost to export competitiveness. Coffee exports — Ethiopia’s largest agricultural export — set a record at approximately $1.8 billion in fiscal year 2024/25, reflecting both improved volumes and higher prices on the international market. Gold exports, much of which had been moving through smuggling channels under the pre-float exchange-rate distortions, increased to record levels as formal channels became commercially competitive: approximately $6.2 billion in fiscal year 2024/25. Combined coffee-and-gold exports of $8 billion in 2024/25 were approximately double the pre-float average. The current-account deficit narrowed substantially. Foreign-exchange reserves, supported by IMF and World Bank disbursements and by the improved export performance, recovered to approximately three months of import cover by late 2025.

Distributional consequences. The macroeconomic gains documented above have been distributed asymmetrically across the Ethiopian population. The export-oriented producers (coffee farmers, gold miners — both artisanal and formal) have benefited from the depreciation; their birr-denominated revenues from dollar-denominated exports have increased substantially. The import-dependent consumers (urban populations dependent on imported consumer goods, manufacturers dependent on imported inputs) have absorbed the depreciation’s costs through higher prices. The federal-government wage-earners — including civil servants, teachers, health workers, and the federal-government’s own pensioners — have absorbed the costs through the erosion of real wages: nominal-wage adjustments through 2024 and 2025 have lagged the inflation rate, producing real-wage declines estimated at approximately 25–40% depending on the wage category and the time period. The accumulated real-wage losses for federal-government employees over the 2018–2026 period are substantial; the political consequences of this distributional pattern are, in mid-2026, visible in declining federal-civil-service morale and in the difficulty the federal government has had in retaining qualified personnel in technical positions.

Parallel-market re-emergence. The post-float merger of the official and parallel exchange-rate markets, which had been the principal stabilisation gain of August 2024, did not prove fully durable. By mid-2025, the parallel market had re-opened with a premium of approximately 20–30% over the official rate — substantially smaller than the 100% pre-float premium but indicative of continued structural pressure on the exchange-rate regime. The re-emergence was driven by continued demand for foreign exchange that the federal government’s reserves could not fully accommodate, by capital-account restrictions that limited Ethiopian residents’ ability to hold dollar assets, and by the structural import dependence of the Ethiopian economy. The parallel-market premium of 20–30% in mid-2025 represented continued exchange-rate distortion at a substantially reduced level; whether the premium will widen or narrow through 2026 depends on the federal-government’s continued maintenance of the IMF programme’s conditions and on the broader macroeconomic environment.

Debt restructuring. The exchange-rate liberalisation has been one component of the broader fiscal stabilisation. The sovereign debt restructuring, negotiated with private bondholders through 2024 and 2025, reached agreement on substantially modified terms in early 2025. The restructured external debt provides longer maturities, reduced coupon rates, and modest haircuts on principal. The restructured arrangement has been consistent with the IMF programme’s conditions and has been substantively endorsed by the Paris Club official creditors. The debt restructuring, combined with the macroeconomic stabilisation, has produced — by mid-2026 — a substantially improved external-debt-sustainability outlook compared to the pre-float position.

Investment flows. The exchange-rate liberalisation has been accompanied by the federal-government’s progressive opening of the Ethiopian economy to foreign direct investment in sectors that had been previously protected. The banking sector was opened to foreign participation through 2024 and 2025. The telecommunications sector, partially privatised under Safaricom’s 2022 entry as the first private mobile operator, has continued to attract foreign investment. The Ethiopian Airlines and Ethio Telecom partial-privatisation initiatives, which had been under negotiation through 2023 and into 2024, were substantially progressed through 2025. The cumulative FDI inflows for Ethiopia in fiscal years 2024/25 and 2025/26 have been substantially above pre-war levels, supporting the broader macroeconomic stabilisation.

The structural significance of the 29 July 2024 float, on the assessment of mid-2026, can be summarised as follows.

The float was technically successful as a macroeconomic-stabilisation instrument. The exchange-rate adjustment was implemented; the official-parallel-market premium collapsed; export performance improved; foreign-exchange reserves recovered; inflation, after a transitional period, declined toward single-digit levels; the debt restructuring was completed. By the standard metrics of IMF-supported macroeconomic stabilisation, the Ethiopian programme has been one of the more successful African stabilisation episodes of the 2020s.

The float’s costs were borne disproportionately by the federal-government’s wage-earning constituencies. The real-wage declines of 25–40% for federal-government employees, the urban consumers’ inflation costs, and the broader distributional asymmetries have produced — by mid-2026 — substantial political constituencies whose economic conditions have substantially worsened during the stabilisation period. The political consequences of this distributional pattern, while not yet operationally significant in mid-2026, are accumulating.

The float’s longer-term sustainability depends on continued fiscal discipline. The federal-government’s capacity to maintain the macroeconomic gains depends on continued fiscal consolidation, which depends in turn on the federal government’s willingness to constrain discretionary expenditure (including, in principle, expenditures of the kind the Corridor Development Project and the Chaka Palace represent). The federal-government’s actual fiscal behaviour through 2024 and 2025 has been mixed; some categories of expenditure have been disciplined while others — notably, the major federal infrastructure and prestige projects — have not. The IMF programme’s continued operation through 2025 and into 2026 has required ongoing negotiations over the federal government’s fiscal performance, with periodic disagreements that have been resolved through programmatic modifications rather than through programme termination.

The float marks the moment at which the war’s accumulated economic costs were converted into permanent welfare losses for the broader Ethiopian population. The fixed-exchange-rate regime that the float ended had been operating, through 2020, 2021, 2022, and 2023, as a partial absorber of the war’s macroeconomic costs: the overvalued official rate had been allowing imported consumer goods to be purchased at administratively-determined prices that did not reflect the underlying foreign-exchange shortage. The float ended this absorption mechanism. The accumulated costs — the war’s fiscal expenditure, the lost output during the conflict, the destroyed infrastructure, the depreciated human capital — became, after the float, costs that the Ethiopian population would pay through higher prices, lower real wages, and reduced living standards over the medium term. The pre-float and post-float consumer-price relationships represent, in economic terms, the conversion of a temporary distortion into a permanent welfare loss.

The political economy of the float is, on this assessment, a case study in the distributional politics of post-war macroeconomic stabilisation. The federal government, having conducted an expensive war and having accumulated unsustainable external debt, was operating in 2024 from a position of substantial macroeconomic weakness. The IMF programme offered a path to stabilisation, but at the cost of policies that would impose significant short-term welfare losses on the federal government’s domestic constituencies. The federal government chose to accept these costs because the alternative — continued unsustainable exchange-rate distortion, continued debt accumulation, eventual hyperinflation or external default with limited capacity for recovery — was operationally worse. The political viability of the choice depended on the federal government’s capacity to manage the distributional consequences without producing significant political mobilisation against the federal government itself. The capacity has, through 2024 and into 2026, been operationally sufficient: the federal-government’s wage-earning constituencies, while substantially worse off in real terms than they were before the float, have not produced sustained political resistance.

The federal-government’s political position in mid-2026 has therefore been shaped, in significant part, by the macroeconomic stabilisation that the float produced. The improved external-sector performance has reduced foreign-exchange shortages and allowed continued imports. The macroeconomic recovery has been the principal positive note in the federal-government’s domestic communications. The donor relationships that the IMF programme structured have provided continued external financing on terms more favourable than the pre-programme position would have allowed. The macroeconomic stabilisation has been, in operational political terms, the federal-government’s principal achievement of the post-Pretoria period.

The longer-term question is whether the stabilisation’s distributional asymmetries will, over time, produce the political consequences that the federal-government’s short-term political calculations have so far been able to suppress. The federal-government’s wage-earning constituencies — the civil service, the teachers, the medical workers, the federal-government pensioners — are the same constituencies whose real-wage declines have been documented above. These constituencies have been, throughout Ethiopian political history, an important part of the social base of any federal-government’s political stability. Their economic position has substantially worsened during the stabilisation period. The political effect of this worsening is, in mid-2026, latent but unaccumulated. The latency may continue for a substantial period; it may also resolve, at some future point, into political consequences that the federal-government’s current calculations have not anticipated.

The 29 July 2024 float was, in technical and macroeconomic terms, a substantial achievement. It restored the operational functionality of the Ethiopian exchange-rate system after a half-century of managed-rate distortion. It enabled the IMF-and-World-Bank stabilisation programme that has stabilised the external position. It has produced, by mid-2026, the disinflation and reserve recovery that the programme aimed at.

The float was also, in distributional terms, a substantial reordering of the relative welfare positions of Ethiopian economic constituencies. The exporters and primary-commodity producers gained. The federal-government wage-earners and the urban import-dependent consumers lost. The accumulated welfare losses of the latter group, while not yet politically organised, are real and unresolved.

The macroeconomic stabilisation has been the federal-government’s principal economic-policy success of the post-war period. The political viability of the stabilisation will depend on whether the federal government can manage the political consequences of the distributional asymmetries the stabilisation has produced. The management has, so far, been operationally sufficient. The sufficiency over the longer term is, in mid-2026, an open question that the federal government has not yet been required to definitively answer.

The currency went. The IMF came. The inflation followed. The economic restructuring of post-war Ethiopia is, in mid-2026, substantially complete in its initial form. The political restructuring that the economic restructuring has implicitly contained is, in mid-2026, still pending.

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Sources for Article 20

1. Wikipedia, “Premiership of Abiy Ahmed,” accessed June 2026 — https://en.wikipedia.org/wiki/Premiership_of_Abiy_Ahmed
2. IMF Country Report on Ethiopia, Article IV Consultation, 2024–2025
3. IMF Press Release on Executive Board Approval of Ethiopia ECF, 25 July 2024
4. World Bank Ethiopia Country Engagement Framework, 2024–2027
5. National Bank of Ethiopia Statement on Foreign Exchange Reform, 29 July 2024
6. Ethiopian Economics Association, “Analysis of Exchange Rate Pass-Through to Inflation in Ethiopia, 2018-2025,” 2025
7. Reuters, Financial Times, and Bloomberg reporting on Ethiopia’s birr float and IMF programme, July 2024 – April 2026
8. African Development Bank Ethiopia Country Report, 2024–2025
9. Addis Standard and The Reporter (Ethiopia) reporting on macroeconomic conditions, 2024–2026
10. Ethiopian Ministry of Finance Annual Reports and Budget Documents, 2023–2026
11. Various analyses of Ethiopian Eurobond restructuring, 2024–2025
12. International Crisis Group, “Time to Get Real with the Tigray Peace Deal,” 19 January 2023 — https://www.crisisgroup.org/africa/horn-africa/ethiopia/time-get-real-tigray-peace-deal (for fiscal-context analysis)
13. ACLED data on Ethiopia macroeconomic and conflict conditions, 2024–2026

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End of expanded article for Dispatch 20. One article, approximately 3,100 words.