Ethiopia’s Parallel Forex Rate Surges to 174 ETB, Testing Government Reforms

Ethiopia’s parallel forex market continues to spiral upward, with the exchange rate hitting a staggering 174 ETB per USD—a sharp rise from 160 ETB just weeks ago and a significant jump from the official rates. This widening gap highlights the deepening strain on the government’s reform agenda and foreign exchange market liberalization efforts.

Reform Momentum Meets Structural Headwinds

As part of its reform agreement with the International Monetary Fund (IMF), Ethiopia has undertaken ambitious steps to unify its exchange rate system. By eliminating most official FX rationing in mid-2024, the country initially reduced the black market premium to nearly zero. However, that trend has since reversed. According to the IMF’s Country Report No. 25/189, the premium had already climbed to 17% by May 2025—and recent market data suggests the gap has now widened even further.

With the official rates hovering at ETB 154.17 per USD at Rooha Forex Bureau and ETB 134.4486 per USD at CBE, the new black market rate of 174 ETB reflects a premium of over 38%, undermining reform credibility and fueling public skepticism.

The IMF attributes the persistent parallel market demand to several structural challenges:

• Ongoing FX restrictions, including a 2.5% commission on sales via the National Bank of Ethiopia (NBE)
• Strict capital controls and negative real returns on local currency assets
• A shallow, uncompetitive financial sector that lacks instruments for hedging against depreciation

Diaspora Remittances: A Bright Spot

Despite the headwinds, Ethiopia’s financial sector has seen some success in formalizing diaspora remittances. One standout initiative is the CashGo mobile app, developed by EagleLion and backed by leading banks such as CBE, Dashen Bank, and Bank of Abyssinia. The platform has helped channel remittances through official banking channels, contributing to a 24% increase in inflows over the past three months.

Complementing these efforts is the Debo initiative—a nationwide awareness campaign launched by the NBE to encourage the use of Foreign Currency Accounts (FCY) and highlight legal remittance pathways. In tandem, the NBE has allocated 100 billion birr across 31 banks, accessible to the diaspora through the unite.et app for a variety of investment and savings purposes.

IMF’s Roadmap for Stability

While acknowledging Ethiopia’s progress, the IMF has stressed the need for sustained and deeper reforms to prevent backsliding. Key policy recommendations include:

• Phasing out the remaining current account restrictions
• Offering positive real interest rates to incentivize savings in birr
• Strengthening the interbank market and introducing hedging instruments
• Encouraging foreign bank entry to boost sectoral competition and resilience

The IMF also draws lessons from global peers. It notes that Ethiopia’s challenges resemble Angola’s FX liberalization experience, where the parallel market premium lingered for years, unlike in Egypt or Nigeria, where reforms led to rapid stabilization.

Official Optimism Amid Market Skepticism

In a recent parliamentary address, Prime Minister Abiy Ahmed (PhD) celebrated major reform outcomes, including a 161% increase in forex reserves, 29% growth in private bank reserves, and $1.5 billion in export earnings—surpassing a $1.1 billion target. While these numbers are encouraging, the growing disparity between official and parallel rates continues to raise questions about sustainability.

The IMF also praised Ethiopia’s transition to an interest-rate-based monetary policy framework, introduced in July 2024. While interbank and Treasury bill rates have risen above inflation, reflecting improved policy tools, the country still faces limitations in market depth, inflation control, and financial access.

The new black market rate of 174 ETB per USD is a stark reminder that structural bottlenecks continue to constrain Ethiopia’s forex market reforms. While gains in remittances and reserve accumulation are promising, bridging the growing divide between official and parallel rates will require bold, sustained action—from capital market development to real interest rate reform and enhanced investor confidence.