The International Monetary Fund (IMF) and the World Bank (WB) want to devalue birr currency by 50 percent from the current 54 birr per 1 U.S. dollars to around 100 birr per 1 U.S. dollars, the Addis Ababa based newspaper, Ethiopian Reporter disclosed on Wednesday.
One U.S. dollars is currently being exchanged for between 100 to 115 birr in the black-market, roughly double the official exchange rate.
Ethiopian Reporter further disclosed IMF and WB don’t believe Ethiopia has a problem of foreign currency shortage rather that it has problems with administration of foreign currency, hence their advice for Ethiopian government to unify the official and black market exchange rates.
Despite the two international financial institutions advice, there are daily reports of commodities price increases and grounding to a halt of factories in Ethiopia as well as other economic difficulties related to chronic shortage of foreign currency in the country.
Ethiopian consumers have also had their incomes depleted by inflation that has been running at more than 30 percent for more than a year, according to official Ethiopia government figures.
Alternatively, Ethiopia has plans to transition from fixed exchange rate to flexible exchange rate, according to its second Homegrown Economic reform (HGER 2.0) program it unveiled recently.
Flexible exchange rate system is the exchange system where the exchange rate is dependent upon the supply and demand of money in the market.
Fixed exchange rate system is referred to as the exchange system where the exchange rate is fixed by the government or any monetary authority. It isn’t determined by market forces.
