Ethiopian Birr Hits Record Low on Parallel Market, Widening Forex Gap

AFRICAN BUSINESS AND ECONOMYAugust 7, 2025 at 9:49 AM UTC

TLDR

The Ethiopian birr fell to a record low of 174 per dollar on the parallel market, diverging sharply from the official rate of 137 birr
The nearly 40% spread raises new concerns about the government’s ability to deliver on its IMF-backed economic liberalisation agenda
The currency float was part of Ethiopia’s $3.4 billion programme with the IMF, announced a year ago to stabilise the economy and attract private investment

The Ethiopian birr fell to a record low of 174 per dollar on the parallel market, diverging sharply from the official rate of 137 birr, as businesses continue to struggle with limited access to foreign exchange. The nearly 40% spread raises new concerns about the government’s ability to deliver on its IMF-backed economic liberalisation agenda.

The currency float was part of Ethiopia’s $3.4 billion programme with the IMF, announced a year ago to stabilise the economy and attract private investment. But with dollar shortages worsening, businesses increasingly rely on black-market rates to import goods and pay foreign suppliers.

Banks continue to ration dollars, often prioritising state-linked firms while delaying or rejecting private sector applications. The gap between formal policy and real-world trading has made operating conditions difficult, especially for small and medium-sized enterprises in sectors reliant on imported inputs.

The IMF has warned that the growing parallel market could complicate ongoing debt restructuring talks and weaken reform credibility.

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Key Takeaways

Ethiopia’s efforts to liberalise its foreign exchange regime are being tested by a surging parallel market that now sets the effective exchange rate for many private transactions. The gap between the official and informal rate has exceeded 25% for most of 2025, according to IMF data, and has now reached nearly 40%. Despite securing more than $3 billion in support from the IMF and World Bank, structural issues persist. A 2.5% FX transaction commission, low interbank liquidity, and weak monetary policy communication continue to distort the market. Banks are unable to meet demand, and the private sector is effectively priced out of formal FX channels. While headline inflation is declining—thanks to tighter credit and fiscal measures—confidence in currency reform is eroding. Without a faster move to a market-based FX system and greater policy transparency, Ethiopia risks further weakening investor confidence and delaying private capital inflows critical to recovery.

Ethiopia

Birr

Currency Crisis

Foreign Exchange

IMF

Economy