IMF Warns Structural Challenges May Sustain Ethiopia’s Parallel Market Premium Despite Forex Reform











Addis Ababa, July 2025 – Ethiopia’s ambitious reform to unify its foreign exchange market is showing results but faces stubborn structural hurdles that could keep the parallel market premium alive in the medium term, the International Monetary Fund has warned.

According to the IMF’s Country Report No. 25/189, Ethiopia eliminated most official FX rationing in mid-2024, moving to a market-determined exchange rate that initially slashed the parallel market premium from over 100 percent to near zero. However, by May 2025 the premium had widened again to around 17 percent.

IMF analysts attribute this resurgence to three main factors:

Remaining exchange restrictions, such as a 2.5% commission on foreign exchange sales via the National Bank of Ethiopia.

Strict capital account controls and unattractive real returns on Birr-denominated assets, pushing investors to seek foreign currency.

An underdeveloped, concentrated financial sector that limits competition and hedging options, leaving importers and savers exposed to depreciation fears.

“Ethiopia’s situation resembles Angola’s experience during its own FX liberalization,” the report notes. In contrast, Egypt and Nigeria saw their parallel market premiums collapse and remain low following reform.

The IMF stresses that while Ethiopia has boosted FX reserves to about US$4 billion (covering nearly two months of imports), real reforms are needed to reduce residual demand for unofficial currency channels.

Key policy recommendations include:

Phased removal of remaining current account restrictions.

Positive real interest rates to make holding Birr-denominated assets more attractive.

Gradual, well-sequenced financial account liberalization, supported by improved regulation.

Deepening the domestic financial market, including developing hedging instruments and strengthening interbank liquidity.

Enhancing competition in the banking sector, possibly via foreign bank participation.

The report also highlights Ethiopia’s broader monetary policy transition. In July 2024, the National Bank of Ethiopia abandoned strict monetary targeting and adopted an interest-rate-based framework. Supported by new policy tools like open market operations and an interbank market, the central bank aims to better control inflation, which has exceeded double digits since 2018.

While Treasury bill and interbank rates have risen above inflation—a sign of early success—the IMF warns Ethiopia’s monetary transmission remains weak. Challenges include:

Shallow money and bond markets.

Limited financial sector depth and competition.

High food price volatility and supply shocks.

A legacy of financial repression and credit rationing.

“The transition will take time,” the IMF writes, urging further reforms to ensure consistent policy signaling, develop a credible interest rate corridor, strengthen bank competition, and reinforce the central bank’s independence and analytical capacity.

The report also examines Ethiopia’s fiscal federalism, noting significant decentralization but persistent vertical imbalances. While regions’ share of national spending has grown to over 55%, many remain dependent on federal grants. Recent reforms have improved revenue sharing formulas, but challenges remain in aligning spending responsibilities and revenue collection capacities.

Overall, the IMF’s message is clear: Ethiopia’s reforms have delivered initial successes but will require sustained, careful policy efforts to address deep-rooted structural constraints, ensure macroeconomic stability, and support private-sector-led growth.













2 COMMENTS

Zewdu Gebreyes







July 17, 2025 At 4:04 am













THE PRIME MINISTER IS WAR MONGER AND DICTATOR, WHO LUCKS TRANSPARENCY ON THE ACTUAL ECONOMIC GROWTH AND EXPENSES. THE CONTINUED WAR IN SEVERAL PARTS OF THE COUNTRY IS INTENTIONAL TO STABILIZE HIS LEADERSHIP AS A DICTATOR. IMF SHOULD BE AWARY THAT THE MONEY WILL BE GOING TO MAINTAIN THE WAR. THE PEOPLE ARE UNDER STARVATION.

THE PRIME MINISTER IS WAR MONGER AND DICTATOR, WHO LUCKS TRANSPARENCY ON THE ACTUAL ECONOMIC GROWTH AND EXPENSES. THE CONTINUED WAR IN SEVERAL PARTS OF THE COUNTRY IS INTENTIONAL TO STABILIZE HIS LEADERSHIP AS A DICTATOR. IMF SHOULD BE AWARY THAT THE MONEY WILL BE GOING TO MAINTAIN THE WAR. THE PEOPLE ARE UNDER STARVATION.

Hussen Ali Seid







July 17, 2025 At 9:18 pm













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Looking Report more information get understand immediately call me USA and land ask me question

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