Ethiopia’s central bank on Monday floated the country’s currency, the birr, in an attempt to resolve the long-delayed debt restructuring deal.

The largest lender in the nation, Commercial Bank of Ethiopia, said that the value of the birr fell by 30% versus the US dollar to 74.73 per dollar. On Friday, the exchange rate was 57.48 birr to the US dollar.

Late last year, the country in the Horn of Africa—which has been dealing with extreme inflation and ongoing shortages of foreign currency—became the third economy on the continent to default on its public debt in as many years.

It has been in discussions with the International Monetary Fund (IMF) to create a new credit program, as the last one that was agreed upon in 2019 and sponsored by the fund was cancelled because of fighting in Tigray’s northern province.

Statements on the float from the central bank stated that “banks are henceforth allowed to buy and sell foreign currencies from/to their clients and among themselves at freely negotiated rates” and that it will only be making “limited interventions” in the FX markets going ahead.

Prime Minister Abiy Ahmed first unveiled the measures late on Sunday.

In a video posted online, Governor Mamo Mihretu of the central bank said that Ethiopia would receive $10.7 billion in external finance assistance from the World Bank, IMF, and other creditors as part of the reforms.

“The IMF and World Bank are both providing exceptional and front-loaded funding support that will be among their highest such allocations in the African continent,” he said.
Importers, who had been relying on the black market to secure dollars, expressed relief at the central bank’s move.

“Now I don’t need to go to the black market to buy or sell dollars. It is now a market-based foreign exchange regime, so (we) will buy or sell based on the legal channels,” said a businessman in Addis Ababa, the capital, who wished to remain anonymous.

The IMF did not immediately provide a statement. Monday saw a slight decline in Ethiopia’s primary $1 billion government bond, which had recently rallied to its highest point since early 2022.

The transition to a foreign exchange rate set by the market was welcomed by the US.

“Market-based FX is a difficult, but necessary step for Ethiopia to address macroeconomic distortions,” the United States embassy in Addis Ababa posted on social media platform X.

The civil conflict in Tigray halted progress in Ethiopia’s request for a debt restructure under the Group of 20’s Common Framework procedure in early 2021. Ethiopia is the second most populous country in Africa.

A new IMF reform program is reportedly tied to the economic reforms the administration has already disclosed, including the adoption of an interest rate-based monetary policy earlier this month, according to analysts.