Ethiopia Floats Birr Amid Economic Reforms

Ethiopia's Prime Minister Abiy Ahmed has defended the recent decision to float the birr, clarifying that it aims to unify the official and black market rates rather than devalue the currency. Following the central bank's move, the birr depreciated by 31.5% against the dollar, prompting concerns over potential inflation, as local businesses have started raising prices on essential goods. This policy shift is part of Ethiopia’s strategy to secure a $3.4 billion loan from the IMF and $1.5 billion from the World Bank, facilitating long-delayed debt restructuring. In response to price hikes, authorities have begun cracking down on businesses engaging in price gouging. While the government and financial institutions believe the liberalization will stimulate economic growth through increased private sector contributions, the immediate impacts on vulnerable populations remain a significant concern. Balancing the short-term economic turmoil with long-term stability will be crucial as Ethiopia navigates this transition.