Ethiopia IMF programme stabilising biir despite currency devaluation

Ethiopia's ongoing economic reforms under the Homegrown Economic Reform Program agenda are showing signs of success as the local currency, the bir, is stabilizing. The recent foreign exchange auction, which attracted a rate of 131.70 per US dollar, reflects this positive trend. Mered Fikireyohannes, Founder & CEO of Pragma Investment Advisory, joined CNBC Africa to discuss the implications of the central bank's foreign exchange auction results and the impact of the ongoing economic reforms. Fikireyohannes highlighted that Ethiopia's decision to float its currency as part of the Homegrown Economic Reform Plan has been instrumental in stabilizing the bir. Over the past nine months, the National Bank of Ethiopia has actively purchased gold from artisanal miners, leading to an influx of foreign currency, mainly in USD. To manage this influx, the central bank has been conducting auctions to offload excess USD. The recent auction of $50 million resulted in a weighted average exchange rate of 131 bir, indicating an appreciation of the currency compared to previous auctions. The central bank's efforts are aimed at both providing liquidity in the foreign exchange market and ensuring the stability of the bir. By addressing issues of transparency and excessive commission rates charged by banks, the central bank is creating a more predictable and stable foreign exchange market. Additionally, the governor announced plans to continue USD auctions biweekly until June to increase the availability of foreign currency and further support the appreciation of the bir. The appreciation of the bir benefits various stakeholders across the economy. From government debt repayment to essential imports like fuel and fertilizer, a stable currency enhances market predictability and instills confidence. As Ethiopia moves towards opening its banking sector to foreign players and implements new monetary policies, a stable foreign exchange market is crucial for sustained economic growth. However, concerns loom over the impact of ongoing conflicts, particularly in the Tigray region, on the country's economic stability. The recent visit by IMF officials, including IMF chief Kristalina Giugieffa, underscored the significance of Ethiopia's economic reforms in transforming the economy. The government's handling of internal conflicts and efforts to prevent further escalation are essential to safeguarding the gains made in stabilizing the bir. In response to questions about the potential risks posed by conflicts, Fikireyohannes emphasized the need for careful management of the situation to avoid any disruptions to the foreign currency market. The government's approach to delicately addressing the conflicts and engaging with stakeholders internally and externally reflects a commitment to maintaining economic stability amidst challenging circumstances. Overall, Ethiopia's progress in stabilizing its currency amid economic reforms signals a positive trajectory for the economy. Continued efforts to enhance transparency, ensure market stability, and manage external risks will be vital in sustaining this momentum and fostering long-term economic growth.