Ethiopia is likely to delay its planned floating of Birr for 2022 as officials at the National Bank of Ethiopia want to at least double the country's forex reserve, which they say is essential to prevent any market distortion after the liberalization the exchange market, according to sources close to Birr Metrics.
Ethiopia currently follows a managed-floating exchange rate regime, where exchange rate is determined by the central bank. However, after Prime Minister Abiy Ahmed came to power, the country was on the path of implementing a market-led exchange rate regime, where everything is determined by demand and supply.
Birr deperciated from 27 Br to 50 Br against dollar since Abiy came to power. It is a preparation to liberalize the exchange market but it was undermined by conflict and souring of relations with the west, as well as the delaying of the debt restructuring plan of the government.
The federal government at least wants to have a seven billion Br reserve before floating Birr. This is two times lower than the current forex reserve, which is not even enough to cover three months of Ethiopia's imports.
