The Ethiopian Birr (ETB) continues its relentless slide, cementing its position as one of the weakest currencies in Africa. Since January 2025, the Birr has plunged by over 30% against the U.S. dollar, a decline driven by severe economic imbalances, inflationary pressures, and persistent political instability that has eroded both domestic and international confidence in Ethiopia’s economy.
As of mid-October 2025, the parallel market exchange rate has surpassed ETB 145 per U.S. dollar — a stark contrast to the official rate of around ETB 95. This widening gulf between official and street values reflects the growing distrust in the government’s foreign exchange management and the overall fragility of the nation’s financial system.
The Anatomy of a Currency Crisis
Economists argue that the Birr’s collapse is the product of both structural weaknesses and governance failures accumulated over years.
Ethiopia’s foreign exchange reserves have dwindled to dangerously low levels, reportedly covering less than six weeks of imports — well below the international safety threshold of three months. Export revenues from coffee, gold, and textiles — traditionally Ethiopia’s main sources of hard currency — have stagnated amid declining global prices and local production challenges.
Compounding the problem, import restrictions imposed by the National Bank of Ethiopia (NBE) to preserve foreign reserves have stifled manufacturing and commerce. Businesses that depend on imported inputs face severe shortages, while importers turn to the parallel market for scarce dollars, pushing rates even higher.
External debt obligations have also intensified the strain. Ethiopia owes billions in foreign-denominated debt, much of it to China, multilaterals, and private creditors. As the Birr depreciates, the cost of servicing these loans in dollar terms balloons, further depleting the country’s limited reserves.
“The Birr’s depreciation is not an isolated event — it’s a reflection of a broader macroeconomic crisis,” explained an Addis Ababa-based economist who requested anonymity. “Fiscal deficits, low productivity, and political uncertainty have combined to undermine the currency. Without credible structural reform, depreciation will continue.”
Inflation: The Everyday Impact of a Weak Currency
Inflation remains one of the most painful consequences of the Birr’s decline. Official figures place annual inflation above 30%, though many economists believe the true rate — especially for food — is significantly higher. The devaluation has made imported goods dramatically more expensive, while domestic production has failed to keep pace with demand.
A liter of cooking oil now costs nearly ETB 250, up from around ETB 110 two years ago. A kilogram of teff — the staple grain for injera — has doubled in price since 2023, while transportation and housing costs have surged alongside fuel prices.
For many households, the crisis is existential. Salaries remain stagnant while the cost of essentials skyrockets. “We earn in Birr but think in dollars,” said a shopkeeper in Addis Ababa’s Merkato district. “Every week prices change, and every day feels more uncertain. You can’t save, you can’t plan, and you can’t trust the money in your pocket.”
Urban wage earners, small business owners, and rural producers alike are being squeezed. Many report cutting back on meals, selling assets, or depending on remittances from relatives abroad — one of the few lifelines providing foreign currency into the system.
Political Instability: The Shadow Over Economic Recovery
Beyond economics, Ethiopia’s political environment remains volatile. Continued conflict in the Amhara and Oromia regions has disrupted trade routes, displaced millions, and deterred both local and foreign investors.
Clashes between federal forces and local militias such as Fano have intensified, leading to widespread insecurity and further undermining investor confidence.
Diplomatic relations with Western donors have also cooled. Concerns over human rights abuses, governance failures, and lack of transparency in public finances have led to the suspension or delay of key aid packages. The resulting decline in foreign inflows has starved the economy of the hard currency needed to pay for imports and service debt.
“Political instability amplifies economic risk,” said an analyst with the Horn Economic Forum. “Foreign investors are unwilling to commit capital in a country where the rule of law is uncertain and the government’s policy direction is unclear.”
Emergency Measures, Limited Relief
In an attempt to stem the crisis, the National Bank of Ethiopia has rolled out a series of emergency measures: tightening import licensing, imposing new foreign currency controls, and increasing surveillance of remittance channels to curb black-market activity.
However, these interventions have had limited success — and in some cases, have backfired by pushing more economic activity into informal markets.
The government has also hinted at a gradual move toward currency liberalization and unification of exchange rates, but experts say such reforms must be accompanied by deeper fiscal and political stabilization measures to be effective.
“Ethiopia faces a textbook balance-of-payments crisis,” said the Horn Economic Forum economist. “Without restoring investor confidence, improving governance, and rebuilding reserves through export diversification, short-term fixes will only delay the inevitable.”
The Road Ahead: Reforms or Ruin?
The Birr’s continued decline has far-reaching consequences. Rising debt-servicing costs threaten to consume a growing share of government revenue, leaving fewer resources for public services. Manufacturing industries face higher input costs, reducing competitiveness. And for ordinary citizens, inflation continues to erode real incomes and trust in the financial system.
International observers warn that Ethiopia is approaching a critical juncture. The International Monetary Fund (IMF) has urged comprehensive reforms — including fiscal discipline, debt restructuring, and a gradual exchange rate adjustment — to restore macroeconomic balance.
Yet political resistance and social fragility make such measures difficult to implement.
For a country once celebrated as one of Africa’s fastest-growing economies, Ethiopia’s downturn offers a sobering lesson. Years of rapid growth built on heavy borrowing, centralized control, and political tension have given way to a painful correction.
If stability and reform remain elusive, the Birr’s fall may only be the beginning of a deeper economic reckoning — one that tests not just Ethiopia’s financial resilience, but its social and political cohesion.
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