FOREX MARKET SQUEEZES TEST REFORM NERVE

Aug 9 , 2025.

The hum of Addis Abeba’s import hubs has faded to a fretful murmur as importers claim their banks demand to know how long their cash would idle before signing off on letters of credit. The message, they say, is clear: try the parallel market. Their frustration is the front-line reality of the foreign-exchange liberalisation. A year after the National Bank of Ethiopia (NBE) scrapped its peg to the dollar, the policy remains mired in uneven auctions, persistent shortages, and a widening gap between official and street market rates. The government’s policy reform credibility, and its billion-dollar programme with the IMF and World Bank, now rests on whether it can close that spread without choking supply in an import-dependent economy.

The July 2024 policy change to let market forces set the Birr was meant to revive dollar flows. For a few months, it appeared to have worked. However, after April 2025, interruptions to the biweekly auctions forced banks to slow down the issuance of letters of credit. Speculation that the official rate could double in September turbocharged demand outside the formal system. Even last week's record auction, 150 million dollars at a weighted average of 138 Br to the dollar, barely nudged the parallel rate below 170 Br. Between July 28 and August 8, Awash Bank’s posted rate rose 1.47 Br, the Central Bank's by 0.90 Br, while the state-owned Commercial Bank of Ethiopia (CBE) held flat and Roha Forex dipped 0.28 Br. The parallel market fell slightly but remained well above the official band.

The IMF’s mid-July review pegged the official-parallel spread at 15pc, blaming high transaction costs, thin interbank liquidity and the Central Bank’s 2.5pc commission on bank-to-bank trades. A recent fee cap at four percent from as high as 12pc to 13pc has not eased importers’ burdens. Importers claim that deposit requirements often run at 150pc to 200pc, and approvals stretch from weeks to months. Official data reveal an uneven picture. Awash Bank provided 125 million dollars in July, 110 million planned in August; Dashen Bank supplied 112.6 million in July; Bank of Abyssinia 94 million (July–early August); Wegagen over 70 million; Bunna 47.7 million; and Sidama Bank made one million dollars available in July, while it slated four million for August. Such disparities feed perceptions of preferential allocation and reinforce incentives to bypass the formal channel.

Governor Mamo Mehiretu countered that the Central Bank's position is stronger, with reserves tripled in a year. Although he did not disclose the reserve amount, IMF data showed that it reached more than three billion dollars, equivalent to about 2.1 months of imports, and auctions will continue. Yet market frictions endure. Executives in private banks blame rising remittance-transfer fees and self-regulated foreign exchange bureaus whose quotes allegedly drive up informal rates. Tightening Franco Valuta rules have pushed more traders into the shadows, while seasonal travel, expat salary payments and foreign property promotions add fuel. Whether authorities can narrow the spread without draining reserves will determine not only the fate of the exchange-rate experiment but also whether importers are lured back from the parallel market, or stay there.

PUBLISHED ON Aug 09,2025 [ VOL 26 , NO 1319]