Ethiopia’s Birr float hits central bank hard

Audited financial data have revealed that the National Bank of Ethiopia (the central bank) incurred substantial operating losses during the 2024/2025 fiscal year, driven primarily by “unrealized” foreign-exchange losses resulting from the revaluation of foreign-currency-denominated assets and liabilities following exchange-rate market reforms. According to the report, unrealized losses amounted to around 445 billion birr, contributing to a net operating loss of approximately 428 billion birr over the reporting period.

These developments come amid a policy shift launched by Addis Ababa on July 29, 2024, when the country moved to a more market-based exchange-rate regime, including the flotation of the local currency. On the day of the announcement, the birr fell by about 30% to 74.73 per US dollar, compared with 57.48 only days earlier, according to data cited by Reuters from the Commercial Bank of Ethiopia.

Under the new foreign-exchange regulatory framework, documents from the National Bank of Ethiopia state that banks and licensed entities are “free” to set their own rates and may buy and sell foreign currency “at negotiated prices.” The central bank also publishes a daily “indicative rate,” calculated as a weighted average of the previous day’s transactions, aimed at enhancing transparency, without serving as a binding rate for market dealings.

This shift forms part of a broader economic reform program supported by international institutions. On July 29, 2024, the International Monetary Fund approved an Extended Credit Facility arrangement for Ethiopia worth about $3.4 billion under a four-year program, which it said aims to address macroeconomic imbalances and support the country’s national reform agenda. The IMF later noted that the transition to a more flexible exchange-rate system had helped narrow the gap between the official and parallel markets and improve the availability of foreign currency, while some unmet demand persisted during the adjustment phase to the new framework.

Regarding the central bank’s losses, Ethiopia’s The Reporter said the audited financial statements, signed by newly appointed central bank governor Aiyob Tekalign, warned that the bank’s exposure to foreign-currency liabilities could exceed its capital and reserves when those obligations fall due, necessitating “strategic intervention” to manage risks and ensure continuity. According to the report, the accounts showed a widening revaluation gap, with the bank’s assets standing at about 1.6 trillion birr against liabilities of roughly 2 trillion birr, including sizable obligations to international entities. The report also pointed to a sharp increase in gold-purchase expenditures and losses linked to gold-trading activities, in addition to external obligations and deposits denominated in US dollars, increasing the balance sheet’s sensitivity to exchange-rate fluctuations.

Analysts argue that the financial impact of exchange-rate reforms is not confined to the currency market, but extends to public-sector accounts and debt-servicing costs. The Reporter quoted financial expert Abdulmenan Mohammed saying the scale of the losses was “expected but shocking,” warning that continued depreciation of the birr could deepen the losses and that closing the gap could ultimately—one way or another—be passed on to public debt or government-issued financing instruments.

These concerns intersect with Ethiopia’s sovereign debt restructuring process. In January 2026, the Ministry of Finance announced a preliminary agreement with a group of holders of $1 billion in Eurobonds, as part of broader negotiations to restructure the country’s debt following its default on an international bond in late 2023, and in parallel with commitments under the IMF program.

While the IMF presents exchange-rate reform as part of a package aimed at improving the efficiency of resource allocation and reducing distortions, the central bank’s financial statements highlight one potential “transition cost”: the swelling of revaluation losses on dollar-denominated liabilities in an environment of local-currency depreciation. As reforms continue, attention will focus on how the government and the central bank manage the trade-off between monetary stability on the one hand and rebuilding the resilience of the central bank’s balance sheet on the other, in order to limit the risk of these losses spilling over into public finances and the real economy.