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Ethiopia’s birr falls 30% as central bank starts currency float

Published

4 months ago

July 29, 2024

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.

Related Topics:Currency float Ethiopia Featured

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Kenya seeks $750m from World Bank, obtains $200m from AfDB— Official

Published

1 day ago

November 20, 2024

Ifeoluwa Dada

The head of debt management for the finance ministry told Reuters that Kenya had obtained a $200 million loan from the African Development Bank (AfDB) and was negotiating a fresh $750 million loan with the World Bank.

After being forced to abandon proposed tax rises costing more than 346 billion shillings ($2.68 billion) in June due to fatal demonstrations, the East African nation’s administration, which has been grappling with significant debt, has been frantically seeking fresh funding.

The Finance Ministry’s public debt management office director general, Raphael Owino, told Reuters that the IMF’s October clearance of the seventh and eighth reviews, which opened the door for a $606 million loan tranche, had aided the ministry’s talks for more loans.

“The World Bank is coming on board, riding on the back of IMF receipts,” Owino said. “The AfDB is already on board.”

The discussions for more assistance, which came under the World Bank’s “Development Policy Operations” (DPO) with the government, were confirmed by a representative at the organization’s Kenya office.

“The amount of the current (loan) is yet to be determined. The amount will also depend on the implementation of the policy reforms agreed upon,” the spokesperson told Reuters, adding that past DPO loans averaged about $750 million.

In May, the World Bank approved the latest round of DPO loans, totalling $1.2 billion.

According to a statement made last month by Finance Minister John Mbadi, Kenya has set a foreign borrowing goal of 168 billion shillings for the fiscal year ending in June 2025.

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Dangote refinery begins petroleum sales to West Africa

Published

2 days ago

November 20, 2024

Ifeoluwa Dada

In an indication to traders that the activities of its mega-refinery might soon disrupt regional fuel markets, Nigeria’s private Dangote Petroleum Refinery has started exporting refined petroleum products to neighbouring West African nations.

According to a Bloomberg story on Tuesday, a tanker had transported a consignment of petrol from the Dangote Petroleum Refinery to seas off the coast of Togo, a nearby West African nation. The article cited data from Vortexa, Kpler, Precise Intelligence, a port report, and a ship-tracking tool.

According to the source, a CL Jane Austen recently departed west after loading over 300,000 barrels from Dangote.

Recall that Mustapha Abdul-Hamid, the chairman of the Ghana National Petroleum Authority, stated last month that the nation is thinking of purchasing petroleum products from the Dangote refinery in order to reduce the approximately $400 million it spends each month on more costly exports from Europe.

Speaking at the OTL Africa Downstream Oil Conference in Lagos, the chairman of NPA, Ghana, said that by eliminating freight expenses, buying from Nigeria instead of Europe will lower the cost of other products and services.

“If the refinery reaches 650,000bpd a day capacity, all that volume cannot be consumed by Nigeria alone, so instead of us importing as we do right now from Rotterdam, it will be much easier for us to import from Nigeria and I believe that will bring down our prices,” Hamid said.

Two weeks ago, it was announced that the refinery would start exporting fuel to Namibia, Angola, and South Africa. Four more African nations—Niger Republic, Chad, Burkina Faso, and Central Africa Republic—had also begun talks with the refinery, it was said.

According to a very reliable source who spoke directly to one of our reporters, the management of the refinery with a capacity of 650,000 barrels per day was in the advanced stages of negotiations with the nations to begin lifting petroleum.

“I can confirm to you that talks are actually at the advanced stage with Ghana, Angola, Namibia, and South Africa, while the initial discussion is coming up with Niger, Chad, Burkina Faso, and the Central African Republic,” the source said.

The petroleum product shipment is currently floating off the coast of Lome, which is a well-liked location for ship-to-ship transfers, according to the source.

Furthermore, the final destination of the cargo of the CL Jane Austen is uncertain.

Despite being off Togo, the region is frequently utilised for ship-to-ship transfers, thus the gasoline may eventually be transported elsewhere.

“While the shipment is tiny in the context of the global gasoline market, it signals the ramp-up of Dangote’s production and the potential to export significant volumes of gasoline beyond Nigeria, which could upend regional markets.”

Last month, the refinery sent its first shipment of petrol by sea to Lagos, a neighbouring commercial centre.

Under the regulatory statute, the Federal Government last month terminated the state-owned oil company’s monopoly on purchasing gasoline from the plant for domestic use, but it has permitted the ongoing importation of fuel from the US and Europe.