The National Bank of Ethiopia announced today that the birr will be devalued by 15 percent effective October 11, 2017.
The policy will translate into 3.45-birr net increase over the current 23-birr/dollar exchange rate.
Although the banks in the country are going to make profit on their foreign currency reserves, the Windfall Tax Proclamation requires them to render 75 percent of the profit in taxes to government.
The International Monetary Fund and the World Bank have been pushing the Ethiopian government to consider devaluing its currency for the past few years. The birr has been overvalued for a long time. The main logic behind this recommendation is the enhancement of the country’s export trade.
Even though this is the case, its impact on the country’s foreign debt basket will be negative. On the other hand, experts also warn that devaluation will trigger inflation since it will make the import of the country expensive.
In his address to the joint session of the Parliament and the House of Federations yesterday, President Mulatu Teshome (PhD) had indicated that exchange rate reform is planned to be undertaken during the current fiscal year and a possible devaluation measure is looming.
Last devaluation measure by NBE was in September 2010 where the birr was devalued by 20 percent.