Finance Minister Foresees Steady Exchange Rate for Next Budget Year While IMF Talks Continue

Jun 11 , 2024

Finance Minister Ahmed Shide foresees current official exchange rate will remain in effect for the next fiscal year, quelling widely held speculation that an impeding deal with the IMF will compel his government to devalue the Birr against major currencies.

During his budget speech in Parliament today, an MP warned against the devaluation as a policy response to the country's foreign exchange woes, citing economists' concerns about its immediate impact on low-income households. The Finance Minister acknowledged ongoing difficulties in managing the foreign currency regime and noted that high-level discussions are underway to determine appropriate measures.

"These are concerns we're quite aware of," he responded. "A sustainable foreign exchange regime has been part of our objectives."

A series of negotiations have been taking place between the authorities and the International Monetary Fund (IMF) over a bailout package with a credit facility of over three billion dollars, contingent on economic reforms. One of the IMF's preconditions includes the liberalisation of the foreign currency market. Securing an agreement with the IMF is also a prerequisite for the debt restructuring Ethiopia is seeking under the G-20 Common Framework.

Ahmed presented a 971.2 billion Br budget to the Parliament today, marking a 21.1pc increase from last year. It is driven largely by a 21.9pc rise in the recurrent budget to 451.3 billion Br, which constitutes 46pc of the total budget. The Minister told federal legislators that a large portion of the recurrent expenditure is allocated to debt servicing, accounting for 30.9pc (139.3 billion Br). Nearly 54.8pc of the debt servicing will be directed to domestic creditors due to the government's increasing reliance on local sources to finance its budget deficit.

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