Ethiopia’s transition to a floating exchange rate regime in July 2024 marked a significant shift in its economic policy, aimed at addressing long-standing distortions in the foreign exchange market, according to the Ethiopian Economics Association’s Quarterly Macroeconomic Updates. However, the Ethiopian Birr (ETB) has experienced steady depreciation against the US Dollar since the reform, with an 11.5% decline recorded between mid-September and December 2024. This trend underscores the complexities of adapting to a market-driven exchange rate system and signals the need for coordinated policy measures to stabilize the currency.

Following the implementation of the floating exchange rate system, the ETB stood at 114.72 ETB/USD on September 16, 2024. Over the next few months, it depreciated significantly, reaching 127.92 ETB/USD by December 31, 2024. The depreciation was driven by factors such as speculative behavior, inflationary pressures, and structural challenges within Ethiopia’s economy.

The initial post-reform period saw modest fluctuations as the market adjusted to the new policy framework. However, beginning in October, depreciation accelerated due to rising inflation and heightened demand for foreign currency. By November, the government’s decision to ban the Franco Valuta system—a mechanism allowing importers to source foreign currency independently—added further volatility to the market.

The depreciation of the ETB has had significant implications for inflation. As import costs rise due to a weaker currency, consumer prices for essential goods have increased, exacerbating inflationary pressures. Headline inflation rose from 1.2% in August to 2.4% in September 2024, reflecting the pass-through effects of exchange rate adjustments.

This dynamic poses challenges for policymakers as they balance efforts to stabilize inflation with the need to support economic growth. Tight monetary policies aimed at curbing inflation have led to liquidity constraints, making it difficult for businesses to access foreign exchange for imports.

Ethiopia’s transition to a market-driven exchange rate system represents a bold step toward economic reform but comes with significant risks that require careful management. The steady depreciation of the ETB highlights the need for coordinated efforts to stabilize key macroeconomic indicators and ensure that structural reforms translate into tangible benefits for businesses and households.

The International Monetary Fund (IMF) team recently conducted its final quarterly review under Ethiopia’s Extended Credit Facility (ECF) program, evaluating the government’s progress on key economic reforms. Authorities have successfully met several critical benchmarks required for the third review, demonstrating their ongoing commitment to the program.

As part of these reforms, the Commercial Bank of Ethiopia (CBE) is set to receive funding pledged by the World Bank, with disbursements expected to begin this month.

Since July 29, Ethiopia has been implementing an extended macroeconomic reform program supported by international partners, including the IMF and World Bank.

Under the 48-month ECF arrangement, the IMF approved a loan of USD 3.4 billion, disbursed in installments contingent on achieving reform milestones.

An IMF delegation, led by Alvaro Piris, visited Addis Ababa this week to engage with government officials, financial sector representatives, and private stakeholders. Discussions focused on Ethiopia’s homegrown economic reform agenda and broader economic challenges.

This visit marks the final quarterly review under the ECF. Since the reform was implemented, the IMF delegation has conducted two visits: one in September and another at the end of 2024. Moving forward, assessments will transition to a semi-annual schedule until the program concludes.

Ethiopia has already received nearly half of the funding allocated under its four-year program, which aims to address macroeconomic imbalances, ensure external debt sustainability, and promote private sector-driven growth.

Experts note that the National Bank of Ethiopia (NBE) has made significant progress in line with its agreement with the IMF, including efforts to finalize and publish audited financial statements.

Additionally, the central bank achieved a positive real policy rate ahead of the third review, primarily due to declining inflation rather than an increase in the policy rate.

A major focus of the IMF and World Bank’s support is strengthening Ethiopia’s financial sector. A key aspect of the reform involves the financial giant CBE, which has secured a government commitment to settle debts that public enterprises were unable to pay, a process that has already begun.

Under the agreement with international partners, the Ethiopian government will inject 54.7 billion birr into CBE for capital reinforcement, while the World Bank will contribute USD 650 million.

A World Bank delegation is expected to visit Ethiopia soon, with funds anticipated to start being released before the end of the month.

With the IMF’s final quarterly review completed, the executive board is expected to approve the next disbursement of over a quarter of a billion dollars, bringing Ethiopia closer to achieving its four-year reform objectives.

The global trade system is facing unprecedented challenges as the United States implements sweeping tariff hikes, disrupting international commerce. In response, the International Chamber of Commerce (ICC) has called for an urgent overhaul of the multilateral trade framework, emphasizing the need for resilience in the face of economic nationalism. Against this backdrop, Ethiopia’s accession to the World Trade Organization (WTO) is being hailed as a critical step toward integrating into global trade and unlocking economic opportunities.

The recent tariff hikes announced by the United States have sent shockwaves through the international trade system. With the U.S. accounting for 13% of global trade, these measures have introduced new barriers that threaten to destabilize economies worldwide. ICC Secretary-General John Denton expressed concern over these developments, stating, “The rest of the world—87% of economies—wants to maintain this system. Our job is to revive it.”

Denton emphasized that the multilateral trade system must evolve to remain relevant in the 21st century. He warned that if institutions like the WTO continue to erode, their ability to deliver benefits to member states will be compromised.

Ethiopia’s accession to the WTO comes at a pivotal moment for the country’s economy. The ICC has actively encouraged Ethiopia to accelerate its membership process, highlighting the “tremendous benefits” it could bring. Denton noted that Ethiopia’s integration into the global trade system would strengthen its ability to attract investment and foster economic growth.

However, Denton cautioned that Ethiopia’s membership must coincide with efforts to revitalize the WTO itself. “If the institution is eroding, there is little point in joining,” he remarked. To ensure success, ICC is collaborating with Ethiopia and other African nations to advocate for a stronger and more inclusive multilateral trading system.

During discussions with the Addis Ababa Chamber of Commerce and Sectoral Association (AACCSA), ICC outlined plans to deepen partnerships with Ethiopian businesses and institutions. AACCSA President Zehara Mohamed emphasized her commitment to transforming this relationship into tangible business and investment activities.

ICC also highlighted its focus on dispute resolution services through its arbitration tribunal and low-cost dispute resolution hub. These initiatives aim to facilitate smoother business operations for companies of all sizes, including small and micro enterprises in Ethiopia.

The ICC’s broader agenda includes reforming global trade frameworks to address challenges posed by protectionism and economic nationalism. Through initiatives like “Making Global Justice Accessible to All,” ICC aims to deliver practical solutions for businesses navigating complex international markets.

As part of its efforts in Ethiopia, ICC is establishing an organizing committee to strengthen ties with local chambers of commerce. Special emphasis will be placed on supporting Ethiopian businesses in leveraging international trade opportunities while navigating disputes effectively.

A dispute has emerged between the Ethiopian Media Council (EMC) and the Ethiopian Media Authority (EMA) over the registration and recognition of journalists. The EMC asserts that it has the legal mandate to register and certify journalists, citing Proclamation No. 1238/2021 as its basis. However, the EMA has issued a statement contradicting this claim, stating that the EMC lacks the authority to issue professional certifications or register journalists.

The EMC recently held a workshop in Addis Ababa to discuss the registration of journalists, professional certification, and the National Media Awards. During this event, the Council outlined plans to develop a uniform digital ID for media professionals, which would provide international recognition and help ensure journalists’ safety by reducing harassment and advocating for them in case of attacks.

However, the EMA’s statement rejecting the EMC’s authority has sparked controversy. The EMC has criticized the EMA’s stance as “irrelevant and vague,” suggesting that it undermines the reputation of both institutions. The Council argues that these issues should be resolved through dialogue rather than public statements.

The EMC claims that previous officials of the EMA understood the concept of professional identity registration and that agreements were made at the signature level before the current dispute arose. The Council speculates that the misunderstanding may stem from a lack of familiarity with the issue by new officials at the EMA.

The EMC emphasizes that the registration and certification of journalists are crucial for promoting responsible journalism, enhancing accountability, and aligning Ethiopia’s media practices with international standards.

The EMC has expressed its readiness to engage in immediate discussions with the EMA to resolve the dispute. With 102 media outlets nationwide, the Council believes that a swift resolution is necessary to avoid further confusion and ensure clarity on the roles of both institutions.

The EMC questions why providing identification to its members should be problematic, highlighting the importance of such measures for accurately counting the number of journalists in the country.