Ethiopia starts to license forex bureaus after currency float

ADDIS ABABA, Aug 8 (Reuters) – Ethiopia has begun licensing independent foreign exchange bureaus, the central bank said on Thursday, as part of the government’s plan to liberalise its financial sector following the free floatation of the local birr currency late last month.

Africa’s second-most populous country secured a four-year, $3.4 billion programme from the International Monetary Fund hours after the floatation on July 29, paving the way for a long-delayed debt restructuring.

The launch of forex bureaus reflects the National Bank of Ethiopia’s plan to “fundamentally transform the size, shape, and scope of Ethiopia’s financial sector over the coming years,” central bank governor Mamo Mihretu said in a statement.

“With the licensing of independent FX bureaus, we are making yet another important milestone in (the) opening up of Ethiopia’s financial sector, and also bringing it in line with global norms and best practices,” Mamo said.

Ethiopia, which is struggling with high inflation and chronic foreign currency shortages, became the third economy on the continent in as many years to default on its debt at the end of last year.

It has been in talks with the IMF since last year to establish a new lending programme, after the last fund-supported programme agreed in 2019 was abandoned due to conflict in the northern region of Tigray that ended with a November 2022 peace deal.

The birr has lost 40% of its value against the dollar since the central bank removed restrictions on foreign currency, trading at 95.69 birr to the greenback at the central bank’s rate on Thursday.

Prime Minister Abiy Ahmed has defended the switch to a market-determined foreign exchange rate, saying it aimed to close the gap between the official and black market rates and did not amount to a devaluation of the birr currency. (Reporting by Dawit Endeshaw; Writing by Hereward Holland; Editing by Josie Kao)

(c) Copyright Thomson Reuters 2024. Click For Restrictions – https://agency.reuters.com/en/copyright.html