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The Ethiopian Birr: Navigating Economic Challenges in 2024 By Zelalem Belayneh Introduction As Ethiopia continues to face significant economic challenges, the value of its currency, the birr, has become a focal point of concern. On July 30, 2024, the Ethiopian government announced a substantial devaluation of the birr by 31%, a move that has raised alarm bells regarding inflation and its impact on the daily lives of Ethiopians. This article explores the current situation of the Ethiopian birr, examining the causes of its decline, implications for consumers, government responses, and potential solutions moving forward. The Devaluation Explained The recent devaluation of the Ethiopian birr marks a critical moment in the nation’s economic landscape. Following the government’s decision to devalue the currency by 31%, the exchange rate has reached unprecedented levels against major currencies. This drastic measure was taken in response to persistent inflation, trade imbalances, and external debts that have plagued the economy. In the months leading up to this decision, inflation rates had soared, with estimates exceeding 30%. The rapid increase in prices has significantly eroded purchasing power, leading to widespread concern about economic stability. While the government aimed to stabilize the currency through this devaluation, many economists remain skeptical about its long-term effectiveness. Impact on Consumers The devaluation of the birr has had an immediate and profound effect on consumers across Ethiopia. Prices for essential goods, including food and fuel, have surged dramatically. Staple items such as teff and cooking oil have seen price increases of over 50% in some regions since the announcement. Local residents are expressing frustration as their salaries struggle to keep pace with these rising costs. "Every month, it feels like I can buy less and less for my family," says Amina, a shopkeeper in Addis Ababa. Such personal accounts underscore the real-life implications of economic policies on ordinary Ethiopians. Government Response In light of the currency crisis and its recent devaluation, the Ethiopian government has implemented several measures aimed at stabilizing the birr. These include tightening monetary policy, seeking international loans, and negotiating with foreign investors to boost reserves. However, critics argue that these measures have not sufficiently addressed the underlying causes of inflation. The government’s reliance on short-term fixes rather than long-term structural reforms has led to uncertainty about the effectiveness of its strategies. Socioeconomic Implications The impact of currency devaluation extends beyond mere price increases; it exacerbates existing socioeconomic disparities. Lower-income families are disproportionately affected as they spend a larger portion of their income on basic goods. More….. open below the linke . https://lnkd.in/eweS3ESM

Developed nations are "kicking away the ladder" that enabled their own rise to prosperity, while imposing policies on developing countries that are ill-fitted to their economic situations and detrimental to their interests. They utilize international institutions like the IMF and World Bank to further their own agendas at the expense of these nations. They also recommend the Washington Consensus, which is a collection of policies that has become their standard set of recommendations linked to loan agreements, for our consumption. In countries like Ethiopia, where the economy is heavily dependent on the primary sector with no(little) improvments in export, the Marshall-Lerner condition, which states that a depreciation of the currency (a fall in the exchange rate) will enhance the balance of trade if the total of the price elasticities of demand for exports and imports exceeds one, does not hold true. The unfortunate truth is that both are happening in contemporary Ethiopia, and our policymakers refer it as ‘ዶግማ’ without making any effort to adapt it to local context. So, based on my understanding, neither allowing the currency to float freely nor other ideas associated with the Washington Consensus wouldn’t be suitable for our economy rather become an aggravating factor for persisting and soaring inflation.

Ethiopia's economic landscape is at a pivotal juncture. The nation must carefully consider its currency management strategy as it navigates the complexities of global markets and domestic challenges. Traditionally, Ethiopia has operated under a managed floating exchange rate system, offering a degree of flexibility while maintaining some government control. https://lnkd.in/dPtBi2N4

Study Literature observation ''Ethiopia's Exchange Rate Reform and Its Macroeconomic Implications''. Its key Impacts: 1) Economic Growth: A sharp contraction in economic activity, particularly in sectors reliant on imports, such as manufacturing. 2) Inflation: Significant inflationary pressures, especially in the reunification scenario, affect essentials like food and fuel prices. 3) Trade Balance: The trade balance initially worsened due to higher import prices, with potential long-term improvements in net exports. 4) Private Consumption: Reduced real consumption due to increased living costs, with more severe impacts under reunification. 5) Government Spending: Decreased spending, driven by fiscal consolidation and increased costs of debt servicing. "In Conclusion and Recommendation," The reform of the exchange rate alone will not be sufficient to solve Ethiopia's underlying economic challenges. These challenges include low productivity, weak exports, and high inflation. The government should address broader issues such as peace and security, weak supply chains, and poor infrastructure. To counteract the negative effects of currency depreciation, Ethiopia needs to increase domestic production, expand irrigation agriculture, and attract foreign direct investment. It is essential to implement social safety nets, including cash transfers and food subsidies, to protect vulnerable households from inflationary shocks.

In a groundbreaking announcement, Ethiopia has announced plans to liberalize her foreign exchange market effective today, ahead of the IMF meeting. The exchange rate of the Ethiopian Birr will be determined by market forces for the first time in over half a century. The Ethiopian government seeks to anchor inflation, bolster the financial sector and improve the investment environment at large. This presents a myriad of opportunities to both domestic and foreign investors considering the initial, tighter regime that surrounded the financial sector, lagging Ethiopia’s development compared to other developing countries. “The liberalization is expected to enhance the competitiveness and inclusiveness of the financial sector, ultimately promoting a more resilient and sustainable economic environment,” Prime Minister Abiy Ahmed stated while making the announcement. At the open of today’s Ethiopian foreign exchange market, the Birr’s value depreciated by at least 30 per cent to 74.73 per dollar from a median of 57.48 on Friday last week. “Amidst the new Ethiopian market liberalization, all exchange rates on the largest bank have increased by at least 28 per cent in one day” Capital Markets Ethiopia shared on their socials. With the looming consequential economic destructions, the Ethiopian government intends to introduce temporary subsidies on certain essential imports such as fuel, fertilizer, medicine and edible oil. Read More ….. Source: https://flip.it/vgmNfg

The latest World Economic Outlook from the International Monetary Fund (IMF) projects economic growth from 2.4% in 2024 to 4% in 2025 for Middle East and Central Asia. Full Report: https://lnkd.in/eztjjWwD The IMF's forecast for Uzbekistan in the latest publication was positive, supported by ongoing structural reforms, particularly in energy pricing and state enterprise privatization. Real GDP growth is projected to be 5.4% in 2024 and 5.5% in 2025, driven by strong domestic demand. #uzbekistan #centralasia #middleeast #imf #economic #outlook

The top 10 countries indebted to the International Monetary Fund (IMF). Argentina leads in debt to the IMF, equivalent to 5.3% of GDP. 5 of the ten most indebted countries are from Africa. 3 are from South America. #IMF #Debt #Economics

The IMF think Sub-Sahara Africa's economic outlook is starting to improve, slowly. It even suggests a 4% growth rate for 2025. Find out more: https://lnkd.in/d_Z3jsfb International Monetary Fund #sub-SaharanAfrica #SSA #economy #economicoutlook

IMF experts list possible risks for Uzbekistan’s economy According to the conclusion of the mission of the International Monetary Fund, the escalation of the war in Ukraine, the volatility of commodity prices and the possibility of stagnation in the world economy constitute external risks for the economy of Uzbekistan. Among the internal risks, the delay in reducing public expenditures, the emergence of obligations related to public-private partnerships, and others were cited. 👉 https://kun.uz/en/70341460

Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), has highlighted the growing importance of the Arab region in an ever-changing global landscape. She has projected that the total GDP growth for the Middle East region will reach 2.9% this year, exceeding the figures from 2023. #uae #arab #gcc #mena #economy #imf #financeworld #financeworldmagazine