In July 2024, the Ethiopian government let the birr float freely. In eighteen months, the currency lost more than 165% of its value. This is not a collapse — it is the plan.
The country has become, whether it sought it or not, a full-scale laboratory for market therapy in sub-Saharan Africa. Nigeria, Egypt, and Angola are watching. The IMF is measuring. And economists who agree on little else agree on one question: when an adjustment program works according to macroeconomic indicators, but the pain is concentrated on the poorest households, has it succeeded or failed?
The Essentials
- Ethiopian exports reached $8 billion in 2024-25, an absolute record, following the birr’s float in July 2024.
- The IMF program unlocked $3.4 billion and enabled a restructuring of Ethiopia’s external debt.
- Inflation rose to 11.7% in April 2026 after a brief dip below 10%, driven by a strong correlation between exchange rates and non-food inflation documented by the Ethiopian Economics Association (EEA) quarterly report.
- The critical phase is not devaluation — it is what comes after, when export gains must offset food price pain that first hits the most vulnerable.
The July 2024 Shock and What It Unlocked
Before the float, the birr was artificially maintained. The result was predictable: a thriving parallel market, exporters dumping their foreign currency at the official rate, importers fighting over unavailable dollars. The economy operated with two prices for the same currency, which is an elegant way of saying it was not functioning.
The float significantly reduced the gap between the official market and the parallel market — from nearly 98% before the float to approximately 7.8% in August 2024. But this convergence proved partial and temporary: the gap widened again to 38-40% in the course of 2025, before stabilizing around 15-20% in mid-2026. For households, the exchange shock translated immediately: import prices climbed, food inflation followed, and the real value of incomes fell. It is mechanical. It is also, according to the IMF, the condition for everything else to work.
That everything else is $3.4 billion in unlocked external financing, a debt restructuring that had become unsustainable after years of major infrastructure projects financed on credit, and a reopening of the country to foreign direct investment that had previously avoided an opaque exchange regime. IMF Country Report No. 26/20 documents the sequence: normalization of the exchange market was the linchpin of everything else.
Exports testify to this reorientation. Eight billion dollars in 2024-25, never before achieved. Coffee and gold, which together represented 77.5% of export revenues in 2024-25, benefited from recovered price competitiveness. The logic is simple: when the birr depreciates, Ethiopian products become cheaper for foreign buyers, exporters receive more birrs for each dollar they earn, and the incentive to produce for export increases.
How Exchange Rate Transmission Captures the Entire Tension of the Program
The figure that deserves attention is not the 165% depreciation or the $8 billion in exports. It is the strong, documented correlation between the exchange rate and non-food inflation — a coefficient of 0.71 according to the Ethiopian Economics Association (EEA) quarterly report, not directly from the IMF.
This coefficient says one precise thing: when the birr loses value, domestic prices rise, including outside food. The Ethiopian economy is open enough for the exchange rate to transmit to domestic prices, but not diversified enough to cushion this passage. Depreciation does not remain confined to traded goods — it diffuses throughout.
Inflation thus oscillated. It had briefly dropped below 10% around the turn of 2025-26, a sign that the initial shock was partly absorbed. Then it rose to 11.7% in April 2026. This rebound signals that transmission is not finished, that the system is still digesting the float. For an economy where a significant portion of the population spends most of its income on food, 11.7% inflation is not an abstract statistic.
It is here that the intellectual debate becomes concrete. Raghuram Rajan, who knows these programs from the inside having led India’s central bank when the country traversed its own exchange ordeals, has always insisted on one point: sequence matters as much as content. Liberalizing the exchange market without social protection infrastructure capable of absorbing the price shock is to place the cost of adjustment on those with the least margin. Joseph Stiglitz goes further: he contests the premise that exchange market liberalization is always the right first step. For him, external demand and export capacity must exist before depreciation produces its beneficial effects — otherwise you create inflation without durable competitiveness gains.
Ethiopia provides a partial answer to this debate. Export gains exist — $8 billion proves it. But they are concentrated mainly in coffee and gold, two sectors that employ a fraction of the working population. Horticulture also contributes to exports, but secondarily. The majority of Ethiopians work in subsistence agriculture or informal services that do not directly benefit from export competitiveness.
Debt Restructuring as Hidden Condition
What is often forgotten in the narrative of adjustment programs is that exchange rate liberalization is never sufficient alone. Ethiopia had accumulated considerable external debt, largely contracted with China to finance its major infrastructure projects — the Renaissance Dam on the Nile, rail lines, roads. When the birr depreciated, the local currency value of this debt mechanically exploded.
The restructuring negotiated under the G20 Common Framework, with private and public creditors including China, allowed repayments to be spread out and made the equation sustainable. Without this restructuring, export gains would immediately have been absorbed by debt servicing in foreign currency. The IMF program is not an isolated tool — it is the center of an apparatus that includes complex geopolitical negotiations.
China plays an ambiguous role here. It is both Ethiopia’s principal bilateral creditor and a major trade partner. Its participation in debt restructuring was slower and more opaque than that of Western creditors, which delayed the conclusion of negotiations by several months. The IMF conditioned the first financing tranches on the conclusion of these agreements — useful pressure, but which also lengthened the period of uncertainty for the Ethiopian economy.
Gains That Don’t Show in the Statistics
Exports at $8 billion are visible. What is less so is the impact on the very structure of the economy.
Liberalization significantly reduced the parallel market — which was actually a rent system that benefited certain well-connected actors. Access to dollars at the official rate was a form of privilege that distorted resource allocation. Firms that could obtain foreign currency at subsidized prices had no incentive to improve their productivity or seek export markets — it was enough to be in good standing to access the window. This parallel market persists nonetheless, with a gap still around 15-20% in mid-2026, testifying to the limits of the reform.
Liberalization brutally challenged this rent logic. It is a form of creative destruction in the Schumpeterian sense: rents disappear, actors lose their acquired advantages, and new dynamics become possible. Philippe Aghion, whose work on growth through innovation emphasizes precisely this mechanism, would say this is where the real long-term wager is played — not in the current year’s export statistics, but in the reorientation of economic incentives for the decades to come.
The question is whether the Ethiopian economy has the institutions to convert this reorientation into sustainable growth. A unified exchange market is a necessary, not sufficient, condition. You need banks capable of financing emerging exporters, a legal system protecting contracts, a tax administration that does not discourage formal investment. These complementary reforms are advancing, but at a different pace than that imposed by monetary float.
What Nigeria, Egypt, and Angola Are Watching
Ethiopia is not the only African country to have recently taken this path. Nigeria underwent a similar naira depreciation in 2023. Egypt liberalized its pound in March 2024. Angola followed a comparable trajectory a few years earlier.
These countries are watching Ethiopia because the Ethiopian case is the most documented and most recent. But they are watching through different lenses. Nigeria is questioning the duration of inflationary pain before macro benefits materialize. Egypt, whose economy is more urbanized and whose middle classes more extensive, wonders whether the recipe is transposable without risk of political destabilization. Angola, whose exports are dominated by oil, observes that exchange rate liberalization does not have the same effect when your main export resource is priced in dollars and you don’t need to gain price competitiveness.
What Ethiopia demonstrates is that an adjustment program can produce positive macroeconomic results within eighteen to twenty-four months, provided exports have a preexisting base to build on. Ethiopian coffee existed before the float. Depreciation made its export more profitable — it did not create the sector from scratch.
For countries whose export base is narrower or whose dependence on food imports is stronger, the same recipe can produce different results. This is the limit of any case study: it documents what worked in a specific context, not what will work everywhere.
The Long Phase That Indicators Don’t Measure Well
Macroeconomic indicators are better at measuring exit from the shock than at measuring pain during the shock. The $8 billion in exports appear in the statistics. The real depreciation of urban household incomes, the food trade-offs made by families replacing meat with legumes, school abandonment linked to rising living costs — these phenomena are much harder to quantify and appear late in official data.
The IMF integrated this dimension in its January 2026 report by highlighting the importance of social safety nets, but with a candor worth noting: Ethiopia does not have the administrative capacity or budget resources to deploy a cash transfer system at the scale of the affected population. The country’s most developed social protection program, the Productive Safety Net Programme financed by the World Bank and several bilateral donors, covers millions of beneficiaries — but it was designed for the poorest rural areas, not for urban households hit by imported inflation.
This is where the debate between Rajan and Stiglitz remains open. Rajan would say that the sequence could have included prior strengthening of social safety nets, however imperfect. Stiglitz would say that the question of sequence is secondary to that of institutional capacity: if the state does not have the tools to redistribute competitiveness gains toward short-term losers, the program will be socially untenable before it becomes economically virtuous. Both are right on different points, and Ethiopia illustrates both simultaneously.
What the Next Two Years Will Decide
The shock phase has passed. The birr cannot continue to depreciate at the 2024 pace. Inflation should decline if the National Bank of Ethiopia’s monetary policy remains disciplined and if the prices of imported commodities do not turn upward.
The real question for 2026-2027 is one of gain distribution. Coffee and gold exporters clearly benefited from the float. Firms that had access to foreign currency at the official rate before July 2024 suffered a loss of rent but now gain in predictability. Urban households dependent on fixed salaries lost real purchasing power.
For the program to be a durable success — not merely temporary macroeconomic stabilization — export gains must diffuse as additional income in sectors broad enough to reach a significant part of the working population. This assumes that export sectors broaden beyond coffee and gold, that emerging exporting SMEs find accessible bank financing, and that the tax administration does not capture all foreign currency gains through mandatory transfer mechanisms.
The IMF is monitoring these indicators. The Ethiopian government is negotiating the program’s next phase. Other African countries are taking notes. And the question posed by this twenty-four-month laboratory remains open: is market therapy without capable social safety nets an incomplete therapy, or is it simply the real price of stabilization that no one honestly calculated before prescribing it?
Sources
- IMF Country Report No. 26/20 — Ethiopia, January 2026
- Ecofin Agency — coverage of Ethiopia IMF program 2024-2026 (no direct URL available)
- World Bank — Productive Safety Net Programme Ethiopia (annual reports, no direct URL available)
- G20 Common Framework for Debt Treatment — documentation on Ethiopian debt restructuring (no direct URL available)
- IMF – Approval of ECF Program for Ethiopia (July 2024)
- IMF – Country Report No. 26/20 (4th ECF Review, January 2026)
- Trading Economics – Ethiopia Inflation April 2026
- Finance in Africa – Record Exports $8.3 Bn in 2024/25
- Addis Standard – Export Boom 2024/25 (coffee and gold)
- Foreign Policy – Debt Restructuring G20 Common Framework (July 2026)
- Ethiopian Black Market Exchange – Persistent parallel market mid-2026
- Birr Metrics – China principal bilateral creditor + 165% depreciation