On a dry September afternoon, Samson Saris stepped out of the Commercial Bank of Ethiopia’s (CBE) main branch by the National Theatre with full of frustration. He had just seen his plans to secure the foreign currency for a crucial business trip crumble.
Samson, aiming to travel to Dubai in search of new business ties and import-export prospects, needed USD 5,000. He had already bought his plane ticket, certain that the bank would provide what he needed. The bank officials had told him that the amount of foreign currency granted depended on his previous transactions. Confident, he walked in with hope.
He walked out with just USD 500.
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The bank claimed his account did not qualify for more. With his trip at stake and no other options left, Samson found himself forced to venture into the shadowy depths of the black market to secure the remaining USD 4,500.
His destination was Ethiopia Hotel—an infamous hub for foreign currency dealings. There, alongside countless others, he became a participant in the illicit foreign exchange trade, a space that’s been flourishing in the wake of Ethiopia’s currency crisis.
As Ethiopia’s foreign currency reserves dwindle, the black market, where the rules are murky but the transactions swift, is roaring back to life.
Banks Can’t Keep Up
According to forex dealers who spoke with The Reporter Magazine, the trade has been picking up speed in recent weeks. One dealer, requesting anonymity, recounted the early confusion after the government’s decision to float the Birr in late July. “For the first two weeks of August, we barely saw anyone selling. No one knew what to expect with the new system,” he said.
The dealers themselves were hesitant to sell. Rumors of skyrocketing exchange rates kept many holding onto their stash, unsure of how the floating Birr would impact the market.
But by late August, it became clear: banks still couldn’t meet the soaring demand for dollars. The crowd returned, and with them, the black market picked up steam.
“We’re seeing more buyers again,” the dealer explained. “Many thought the banks would be able to provide enough foreign currency, but that didn’t happen. They had no choice but to come back to us.”
The going rate? Smaller transactions under USD 500 go for 125 birr per dollar. For larger deals—like the USD 5,000 Samson needed—the rate drops slightly to 120birr, a small mercy in a market where every Birr counts.
Another dealer, working the same streets near Ethiopia Hotel, confirmed the trend. After the initial lull in August, sellers started returning too, drawn by high prices. “We’re offering 125 to 126 birr per dollar, and that’s bringing people back,” he said.
Caught in the Currency Squeeze
For business owners like TesfawKelemu, the foreign currency squeeze is more than just an inconvenience—it’s a financial noose tightening around their operations.
Tesfaw, a seasoned importer of chemicals, construction materials, and machinery spare parts, has seen firsthand how the forex shortage is wreaking havoc across industries. Like many, his company relies heavily on export earnings—coffee, pulses, and oilseeds—to finance essential imports. But even that lifeline is proving insufficient.
“Banks tell us there’s more foreign currency available, but we’re not seeing it,” Tesfawsays. “Whatever we deposit from exports is all we can get. If we’re even slightly short, the banks can’t help us.”
Despite reassurances from financial institutions, the banks remain unable to plug the gaps. Foreign exchange earnings from exports have become the last defense, but they are not enough. As Tesfaw points out, the scale of imports required to maintain operations far outweighs what can be scraped together.
“The shortage is real,” Tesfaw says with a resigned sigh.
Struggling for Dollars: Businesses Grapple with Forex Crisis
Habtu Dimtsu, Operations Director at Dejen Import & Export, offers an insight into the foreign currency crisis crippling the business landscape. His company, which exports coffee, oilseeds, pulses, and spices while distributing pharmaceuticals domestically, is largely surviving on its export earnings. Without that crucial inflow, Habtu admits, the company would be facing the same crippling shortage of foreign currency that’s plaguing many other businesses.
Despite recent optimism surrounding policy reforms, Habtu remains grounded in the reality of Ethiopia’s economic challenges. “The shortage of foreign currency is still a problem,” he says, though he’s hopeful that the situation will eventually stabilize.
Habtu believes the government’s decision to float the Ethiopian Birr, while painful in the short term, could lead to long-term gains by boosting exports. “More exports mean more forex earnings,” he adds, his confidence buoyed by the potential this shift could bring.
Still, he’s quick to note that recovery will be slow.
“There won’t be an overnight solution, but the early signs are encouraging.” One of those signs, he points out, is the new policy allowing exporters to retain 50 percent of their foreign currency earnings. It’s a stark contrast to the previous system, where 80 percent of earnings had to be surrendered to the government.
“The old 80-20 policy discouraged exports and severely reduced forex inflows,” Habtu explains. This policy shift, he believes, is fostering new incentives for exporters, and early indications suggest that export activity is beginning to pick up.
Yet even with cautious optimism, Habtu recognizes the inherent limitations. Ethiopia’s export base is largely agricultural, which means the forex earnings from these exports grow slowly compared to other sectors. “We’re limited in how quickly we can ramp up exports,” he admits. For now, the forex crunch remains a looming challenge.
A Bleak Outlook for Some
Not everyone shares Habtu’s hopefulness. Another importer, who asked to remain anonymous, paints a bleaker picture of the situation. Her company imports agricultural equipment—veterinary tools, poultry and dairy supplies, beekeeping equipment—and like many others, she has found herself caught in a web of bureaucratic delays and forex shortages.
“I applied for foreign currency from the CBE over a month ago, and I’m still waiting,” she says, her frustration palpable. According to her, private banks have shown some improvement, requiring clients to deposit the equivalent amount in Birr and then releasing the foreign currency within 15 days. But at CBE, she feels shut out. “They’re only providing foreign currency to select clients—mainly those with strong export ties.”
The days when CBE provided foreign currency on a quota basis to any business are gone, she claims, adding,now, it’s a game of connections. “It’s no longer about the quota; it’s about having the right relationship with the bank,” she adds, underscoring the growing inequity in access to foreign currency.
A Crisis Worsened by Debt
Ethiopia’s foreign currency woes are part of a broader economic crisis marked by soaring debt and a massive balance of payments deficit. The country’s foreign reserves were dwindling before the reform, only able to cover roughly two weeks of imports—a precarious position for a nation that imports over USD 23 billion worth of goods annually while exporting just USD 10.8 billion.
This yawning gap of more than USD 12 billion has put extraordinary pressure on the country’s ability to secure foreign currency, driving many, like Samson and many other importers, to the black market.
In response to the escalating crisis, the Ethiopian government has implemented a series of sweeping macroeconomic reforms. Chief among them was the decision to float the exchange rate in July 2024, part of a deal struck with the International Monetary Fund (IMF). The IMF approved a four-year, USD 3.4 billion Extended Credit Facility (ECF) to support Ethiopia’s economic stabilization efforts. The first USD one billion was disbursed immediately, aimed at addressing the country’s most urgent foreign currency needs. The remaining USD 2.4 billion will be released in stages over the next three years, contingent on Ethiopia’s progress with economic reforms.
The reforms, while necessary, have left many businesses in a bind. With foreign currency reserves stretched thin and debt piling up, companies across the country are left scrambling for solutions—many of them outside the legal banking system.
A Long Road Ahead: Reforms Offer Hope, but Challenges Persist
Despite sweeping reforms, the foreign currency crisis continues to cast a shadow over the economy. The shift to a market-based exchange rate—while aiming to alleviate the forex shortage, control inflation, and reduce the reliance on central bank financing—has yet to deliver the relief businesses and citizens need. The trade deficit remains alarmingly high, and the country’s foreign exchange reserves are woefully inadequate to meet its mounting demands.
According to the National Bank of Ethiopia, the 2022/23 fiscal year ended with a balance of payments deficit of USD 752 million and a staggering USD 12.5 billion trade deficit. This imbalance underscores the scale of the crisis, with the gap between imports and exports continuing to widen.
In a bid to address the shortfall, the government has taken steps to increase remittances, one of the country’s most critical sources of foreign currency. On September 5, the National Bank launched a 100-billion-birr loan program in collaboration with all 31 commercial banks. The initiative aims to encourage the Ethiopian diaspora to send money home through official banking channels. Those who use these channels will have access to loans for housing or business purposes, a move designed to lure more foreign currency into the formal economy.
Yet, Fikadu Digafe, Vice Governor and Chief Economist of the NBE, cautions that the forex shortage will not be resolved overnight. He believes that as the country corrects price distortions and boosts exports, foreign currency supply will gradually improve. “The ongoing economic reforms will eventually ease the foreign exchange shortfall and stabilize prices,” he assures.
However, some experts remain skeptical.
Ayele Gelan (PhD), a research professor at the Kuwait Institute for Scientific Research, contends that Ethiopia’s foreign exchange woes run deeper than policy changes alone can address.
He warns that the new exchange rate policy may not be enough to fix the crisis in the long term. “The parallel market will continue to thrive as long as banks are unable to supply enough foreign currency,” Ayele explains. Floating the Birr, he argues, will have limited impact if the underlying forex shortage persists.
Ayele believes that without adequate supply, the currency float risks becoming irrelevant, as the market will inevitably return to “business as usual.” The black market, with its higher returns, will continue to attract sellers, further straining the formal banking system.
To break this cycle, Ayele advocates for policies that would shift more forex from the parallel market into official channels. Doing so, he argues, would allow banks to offer more foreign currency, which could ease restrictions on imports, make the domestic market more competitive, and ultimately lower prices for consumers.
More importantly, greater access to foreign exchange would enable banks to better support investors by allowing them to import capital goods and raw materials, boosting production, and driving exports—key components in improving Ethiopia’s trade balance and forex reserves over time, according to Ayele.
The disparity between the official exchange rate and the black-market rate only compounds the issue, he says. As of now, the rate on the parallel market hovers around 130birr per USD, significantly higher than the official rate. This gap incentivizes individuals and businesses to sell their dollars on the black market, where they can receive a much higher return. This vicious cycle drains the formal banking sector of much-needed foreign currency and perpetuates the shortage.
