At Merkato, the sprawling commercial heart of Addis Ababa, in Ethiopia, traders have grown used to disappointment. For years, securing hard currency through official channels was an exercise in futility. Kalid Mohammed, a textile importer, had stopped trying altogether.
“You’d fill out forms, wait weeks, and hear nothing back,” he says. So when he applied in May for dollars equivalent to two to four million birr, he expected more of the same. Instead, within six weeks, 70 per cent of his request was fulfilled. “I was shocked,” he says. “This is new.”
“Banks are now more willing to provide foreign currency, and those with stronger negotiating power are the ones benefiting from the reform,” says Mohammed Assefa of the Bank of Abyssinia. “But with business activity slowing, demand from importers has begun to decline.”
The overhaul, launched in July 2024, marked a sharp pivot from state-led development to a more liberal, market-oriented model. The birr was floated within a managed band, plunging overnight from 57 to 75 to the dollar. A year on, the official rate has slid to around 138, while the parallel market—buoyed by demand and speculative flows—briefly pushed past 170 before showing signs of easing this week.
Inflation has eased—from 20 percent in mid-2024 to 13.9 percent in June 2025—but the cost of living remains high, and access to forex remains uneven.
Yet signs of macroeconomic adjustment are beginning to show. In June, commercial banks sold 500 million US dollars in foreign currency—twice as much as a year earlier. Total forex inflows climbed to 32 billion US dollars in 2024/25, up from 24 billion dollars the year before, buoyed by stronger exports, external loans, aid, and a surge in remittances, which hit seven billion dollars.
This week, the National Bank of Ethiopia (NBE) said banks are now working together to reduce pressure on the birr by coordinating efforts to meet demand through official channels. In a stern warning, Governor Mamo Mihretu said those using or facilitating illicit parallel market transactions would face consequences. “We have deployed systems to track parallel market activities. If we catch anyone engaging in such activities, we will confiscate the money,” he said.
The central bank also resumed its foreign exchange auction after a one-month pause, selling 150 million dollars to 28 banks at an average rate of 138.26 birr to the dollar—representing a 3.3 percent depreciation since June. The pause had coincided with a widening of the gap between the official and parallel rates, which authorities now hope to close through resumed auctions and improved formal access.
To reinforce formal channels, the state-owned Commercial Bank of Ethiopia (CBE) announced it has expanded foreign currency services for outbound travellers. Eligible customers can now access up to 15,000 US dollars for business travel and up to 10,000 dollars for personal or medical travel, loaded directly onto Visa or Mastercard accounts. CBE said it is “ready to process this service quickly and in the amount requested” under NBE supervision.
For ordinary Ethiopians, however, the reforms have offered little immediate relief. Before dawn, Yohannis Mengistu begins his daily search for construction work. His wife takes on informal jobs around the city. “Even two jobs aren’t enough,” he says, as they struggle to feed their child. Prices of essentials—much of them imported—remain punishing.
The spread between official and parallel rates—still hovering around 17 percent—remains a reminder that liberalisation is incomplete. Analysts say the market is still subject to heavy central bank influence, often exercised indirectly through state-owned banks. The informal market persists, fed by remittances, illicit outflows, and importers seeking speed and flexibility.
The floating of the birr was the centrepiece of Ethiopia’s most dramatic financial shake-up in decades. It was supported by a 3.4 billion dollar credit line from the IMF and over 16 billion dollars from the World Bank. On day one, the NBE rolled out sweeping reforms: exporters could retain half their earnings (up from 40 percent); mandatory forex surrender rules were relaxed; and exchange bureaus were permitted to trade at market rates. Residents, foreign firms, and the diaspora gained greater flexibility to hold and use foreign currency accounts.
Other reforms followed: foreign investors were allowed into the banking and property sectors; a new Monetary Policy Committee was established; an interbank money market was launched; and Ethiopia’s first stock exchange is being prepared for launch.
Authorities say these changes are laying the groundwork for renewed investment. But experts remain cautious. “There are major factors beyond macroeconomics that affect FDI and haven’t improved, including political and geopolitical risk,” says Getachew Teklemariam, a development economist. “Policy predictability has also become more difficult, which raises risk and the cost of capital.”
To stabilise the transition, the NBE introduced biweekly forex auctions in August 2024. Between April and June 2025, the central bank offered 50–70 million dollars every two weeks, with banks absorbing nearly all of it. Average auction rates adjusted slowly from 131.7 to 134.9 birr to the dollar. Caps on the buy-sell spread (two percent) and bank fees (four percent) added structure to a previously murky system.
“The bank’s intervention shows the NBE is starting to listen to the market,” says Getachew. “It reflects both goodwill and recognition that gaps had to be addressed.”
Even so, problems persist. Letters of credit remain hard to obtain, and shortages are fuelling continued interest in the parallel market. Some businesses say banks still ask for more birr than the forex requested to open LCs—a practice the central bank has now declared impermissible.
The reforms have also come with fiscal tightening. The 2025/26 budget, passed in July, totals 1.93 trillion birr, up from 1.25 trillion the previous year. But capital spending has been slashed, while recurrent expenditures—mostly salaries and transfers—have grown. “It comes gift-wrapped in promises of discipline,” wrote economist Kebour Ghenna, “but there are no new development projects, no income tax relief, and little for the poor. Just more taxes.”
The IMF agrees Ethiopia’s tax system remains underdeveloped. While domestic revenue has improved, it still lags behind regional peers. Analysts call for simpler, fairer taxes and a broader base—without overburdening existing businesses. “Tax collection has improved, but at a high human cost,” says Getachew. “It’s created unpredictability across the business community.”
Yet the macro indicators are improving. Foreign exchange reserves have tripled to 3.6 billion dollars. Commercial banks’ forex assets are up 48 percent. Ethiopia posted its first balance of payments surplus in over a decade: 2.6 billion dollars. Grant disbursements doubled, loan inflows rose by 71 percent, and capital inflows increased.
Prime Minister Abiy, in remarks to lawmakers this month, projected 8.4 percent GDP growth for 2024/25, citing gains in agriculture and industry. Over 23 million people are said to have exited the rural safety net programme, and manufacturing capacity utilisation has risen from 47 to 65 percent. Cement output grew by 16 percent.
The IMF, though encouraged, has urged further reforms: phasing out current-account restrictions, raising real interest rates, and deepening financial markets. It recommends new hedging tools, greater bank competition—including from foreign entrants—and sequenced capital account liberalisation under stronger supervision.
Analysts warn against relying too heavily on macro targets. “These reforms will shape Ethiopia for a generation,” says Getachew. “Without contextual awareness, the risk is that policies burden citizens and drive activity into the informal economy.”
He also calls for stronger anti-corruption safeguards. “Corrupt money injected into the system worsens the cost of living and deepens hardship for ordinary people,” he says.
For now, Ethiopia’s reforms have created two realities: traders like Kalid are seeing real, if uneven, benefits. But for workers like Yohannis, the promise of reform remains out of reach.
Birrmetrics
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