Ethiopia's chronic foreign-currency shortage and repeated birr devaluations

Ethiopia's state-directed growth model relied for years on large public infrastructure investment financed partly through directed bank lending, a strategy that delivered rapid GDP growth but left the country chronically short of the hard currency needed to pay for imports and service external debt. The National Bank of Ethiopia devalued the birr by 15% in October 2017, its first devaluation since 2010, hoping a cheaper currency would boost exports and ease the shortage, and World Bank analysis found the move pushed up import costs and fed into domestic inflation more than it stimulated export volumes. Despite that and further adjustments, the shortage persisted and worsened: from mid-2018 the birr depreciated by more than 20% a year on the official market alone, while an informal parallel market emerged charging nearly double the official rate, at times exceeding 110 birr to the dollar against an official rate near 56. Businesses routinely faced long delays accessing the foreign-currency allocations they were owed, and Ethiopia's trade deficit widened to roughly 14.3 billion dollars by 2023. The repeated use of devaluation as the primary policy tool, seven times between 2000 and 2017 alone, consistently failed to durably close the gap between foreign-currency supply and demand.