Minister for Foreign Economic Relations Abdul-Mejid Hussein said on April 16 that Ethiopia has accepted a World Bank recommendation to devalue the birr. He told Reuter the details and timing of the devaluation, the first in more than two decades, is yet to be decided. “The principle has been accepted. We are committed to devalue, the birr.”

The birr has been fixed at 2.07 to the U.S. dollar for more than two decades. The government has been reluctant to seek more realistic valuations fearing major economic and social problem.

Abdul-Mejid added that transitional Ethiopian President Meles Zenawi had assured World Bank Vice President Edward Jaycox that the government now fully accepts the principle of a devaluated birr as part of a wider assistance package.

Other important elements of the World Bank and International Monetary Fund assistance package include adoption of conservative fiscal policies and a timetable for eliminating subsidies.

Abdul-Mejid said he hoped negotiations on the Structural Adjustment Program (SAP) would be concluded by the end of June.

In other African countries where SAPs have been implemented, two-tier systems valuation has resulted. Accordingly, individuals and private businesses use a rate more in line with the black market rate while official agencies use the established rate. The current black market rate is around six birr to the dollar. Official rates will gradually conform with the market rate.

“On the other hand, it may better to go to the whole way at once. Either way, the social dimensions of adjustment and the cost of it have to be agreed,” Abdul-Mejid said.

He said the transitional government has calculated a “safety net” of around 1.7 billion birr ($825 million) to alleviate the effects of devaluation.

Source: Reuter