It is lauded as ‘a symbol of the financial sector’s liberation’ and simultaneously decried as a source of profound disappointment. Some see it as having doubled exports, while others point to its role in halving the working capital of import-dependent businesses. It is cheered for boosting the country’s forex supply, yet derided as the reason behind the mounting pile of rejected loan applications across banks. One side considers it the least painful remedy for Ethiopia’s economic ailments, and at the same time it is a likened to ‘chemotherapy‘—emphasizing its indiscriminate harm. These complex and often contradictory statements are how experts and industry practitioners describe the impact and legacy of the infamous ‘Green Directive,’ introduced on July 29, 2024.
Nearly a year ago, central bank Governor Mamo Esmelalem Mihretu’s consequential piece of legislation enacted an abrupt float of the Birr, thereby discontinuing a decades-long regime of stringent exchange controls.
Despite conceptual allusions within the ‘homegrown’ economic reform policy three years prior, public awareness of this impending change was limited. The directive rocked the business community, economists, and ordinary citizens. It instantly became a hot topic, discussed by everyone, not just specialists. The business sector, including banks, froze, hesitant to act without knowing what lay ahead. Theories abounded, from hopeful forecasts to grave predictions of repercussions.
The announcement of the policy shift was met with mixed reactions. Warnings were sounded, with some citing the negative experiences of countries such as Ghana, Nigeria, and Zimbabwe. Conversely, others saw it as a necessary and progressive step towards alignment with global business norms. A third group of observers recognized the immediate hardships it might inflict but ultimately considered it the most pragmatic course of action.
At the time, these were little more than predictions. But now, almost 12 months into its implementation and with the budget year drawing to a close, the directive’s effects are a tangible reality. So, what have been its actual outcomes? What exactly has unfolded since last July? Who are the beneficiaries, and who are the losers? And to what extent have they benefited or lost? What has gotten better, and what deteriorated? The Reporter Magazine explores.
Foreign Currency Supply and National Reserves
Governor Mamo had justified the new market-based foreign exchange administration by stating that it would not only serve as “a gamechanger in addressing the prevailing macro-imbalance” but also enable the country to attain robust national reserves and a notable enhancement in foreign currency provision.
After all, the particular policy that sent shockwaves was Directive No. FXD/01/2024, dubbed ‘The Green Directive,’ an ambitious foreign exchange act designed to overhaul the country’s system and streamline currency-related activities. It declared the adoption of a market-based exchange rate and introduced a wide array of new practices. These ranged from permitting non-bank independent foreign exchange bureaus to operate in the forex market and ending the surrender requirement for foreign currency, to removing import restrictions imposed by the Ministry of Finance on 38 products previously facing critical foreign exchange shortages. The directive also allowed Ethiopian residents (including individuals and not-for-profit organizations), non-resident Ethiopians, and foreign nationals of Ethiopian origin to open foreign currency (FCY) accounts.
Another of the float’s changes was the formalization of independent forex bureaus.
For Abas Ibrahim, owner of Aman Forex Bureau—one of the first to begin operating—the morning of July 29 was nothing less than “a sunrise in the Ethiopian financial sector’s gloomy sky.”
“Before, even talking about dollars on the phone could get your line shut down. Simply possessing foreign currency was criminalized, despite the absence of a formal law in the Negarit Gazette,” Abas said. “But July 29 marked our liberation.”
He believes independent forex bureaus play an important role in the market.
“We helped control prices. The parallel market now references our rates. If legal options are available, people won’t play hide-and-seek with the black market,” said Abas.
He told The Reporter Magazine that while demand for forex in a country of over 120 million is difficult to satisfy, supply has improved in the months since the currency floating.
“The real problem now is a shortage of Birr, not forex,” Abas said.
However, not everyone agrees with his assessment.
A customs transit agent working for a printing accessories import company in Addis Ababa shared a different experience with The Reporter Magazine. According to him, the ‘honeymoon phase’ of easy forex access through commercial banks lasted only about three months.
“The shift brought a paradoxical sense of relief for the first three months,” he explained. “But after that, only the Commercial Bank of Ethiopia [CBE] continued to supply foreign currency. Other banks reverted to their old ways.”
Can it truly be said that the ‘Green Directive’ has delivered? Has it improved forex supply and national reserves? The facts and figures remain a closely guarded secret and details are hard to come by.
Critical questions—like how much foreign exchange banks have supplied to or bought from the market, and to what extent they experience forex shortages—are not easily answered, and the currency float’s impact on banking performance is still a puzzle.
Eshetu Fantaye, a retired banking executive, describes the severely limited access to foreign exchange-related information in Ethiopia as “an unfortunate reality that makes meaningful analysis difficult.”
Yenehasab Tadesse, director of Forex Reserve Management at the National Bank of Ethiopia (NBE), declined to provide specific data but told The Reporter Magazine that forex supply has “without a doubt witnessed tremendous improvement.”
Although it is unclear what the extent of this improvement is, Yenehasab’s comment reflects claims from higher-ups at the central bank. While presenting the NBE’s nine-month performance to Parliament in April, Governor Mamo told lawmakers that forex reserves had surged by 200 percent.
“While there are general indications of some improvement, the situation remains challenging, ” said Eshetu.
Market Disparity
Following the currency floating, the official exchange rate leaped from around 57 Birr per US dollar in June to a monthly average of 100.6 Birr in August, representing a staggering devaluation of nearly 75 percent within the space of a few weeks.
The parallel forex market, long the lifeline for businesses and individuals needing hard currency, briefly surged above 140 Birr/USD before beginning to converge with official rates. The numbers reflect that chaos was narrowly averted.
By June 2025, the official exchange rate peaked at a monthly average of 133.96 Birr/USD, while one US Dollar now fetches upwards of 156 Birr on the black market.
“Currently, this gap has reduced to around 14 percent. While the optimal standard is two percent, a substantial improvement has clearly been achieved,” noted Tewodros Makonnen (PhD), senior country economist at the International Growth Centre.
This convergence was no small feat in an economy where, until recently, the black market held a near-monopoly on price discovery.
“That gap was suffocating the economy,” said Abas. “Now, people come to us instead of the illegal market. We pay taxes. We helped legalize the FX business.”
Insiders observe that independent forex bureaus like the one run by Abas typically align their rates more closely with the black market. The relationship is a source of concern for Tewodros.
“Is the market truly leading the banks? Aren’t they just following the black market? To me, that’s the question at the moment,” he told The Reporter Magazine.
Export Performance and Contraband
Another justification for the policy was that a market-driven foreign exchange system would boost exports and curb contraband, which posed a significant threat to Ethiopia’s international trade prospects.
Nine months into implementation, exports had reportedly almost doubled, with the country registering USD 7.21 billion in revenues. If accurate, the figure represents a monumental growth considering exports generated less than four billion dollars.
However, some experts view these figures with considerable skepticism.
One of those economists, citing an analysis from Grok ( xAI’s chatbot), suggests a much lower figure of around USD 5.5 billion, though this remains controversial.
“The USD 7.21 billion export figure seems inflated. EU import data and Djibouti port records support a USD 4.5-5 billion total for 11 months of 2024/25,” states the quoted analysis.
On the issue of contraband, however, even skeptics like Professor Alemayehu Geda, who has repeatedly voiced concerns about the policy’s potential fallout, agree.
But has contraband trade genuinely slowed since the floating of the currency?
Gold, coffee, khat, and live-animals smuggling is a long-standing practice, with traders enticed by prospects of improved profits and hard foreign currency in markets abroad. Tewodros argues the currency float has curbed this illicit trade significantly, leading to improved export performances for these goods.
Although the first two, namely gold and coffee, were helped by substantial surges in international market prices, Tewodros maintains that this factor alone does not deserve full credit for the higher revenues.
“I don’t believe these results would have been gained by the international market alone,” said Tewodros.
Taming Inflation–A Costly Victory
For critics of the currency float, such as Professor Alemayehu Geda, uncontrolled inflation was the most significant apprehension.
“It is a policy I was disappointed by. We are left helpless, with prayer for the worst not to come as our only recourse,” he said at the time.
However, about six months after the policy’s implementation, the NBE reported a substantial drop in the inflation rate. It fell to 19.9 percent from 29.3 percent the year prior, with the latest figure standing at 13.5 percent.
Although he was vocal in warning about the potential consequences of the policy when it was enacted 11 months ago, Professor Alemayehu is now reticent about sharing his opinions.
“Commenting has become risky,” he said when approached by The Reporter Magazine.
While the usual questions regarding data credibility persist, there is a widespread belief that inflation has not surged to the levels initially predicted by some economists.
“Regardless of whether we accept the government’s reported figures, we haven’t seen the inflation many feared when the announcement was first made,” Tewodros argues.
However, the currency float was not without its casualties. Fixed-income earners, public servants, pensioners, and low-wage workers were hit the hardest. Even government promises to protect these vulnerable groups through measures like increased public servant wages and SafetyNet programs proved insufficient. In the months following the float, the cost of living surged, with the Consumer Price Index soaring through the third and fourth quarters of 2024, driven primarily by increases in food, fuel, and medicine prices.
Tewodros observes the surge in fuel prices has translated into food and nonfood inflation.
“That is one pain witnessed,” he said.
Other observers note that businesses that rely on imports for production inputs but have yet to embark on exports are also suffering as a result of the currency float.
“For instance, a factory with one billion Birr in working capital, intended for raw material imports, now finds that money’s purchasing power slashed by half. This halving of working capital impacts the entire economic system, underscoring the critical need for a sensitive balance in policy,” said Ermias Amelga, entrepreneur and real estate pioneer.
Abas has also noted the issues.
“Cash flow is crucial for investment, and that’s precisely where the current problem lies,” he said.
The anti-inflationary measures implemented, including a 14 percent credit growth cap on banks (down from 18 percent), substantially hampered investment. A critical outcome of these measures was the emergence of a liquidity crunch.
Winners and Losers: The New Currency Arithmetic
The outcomes are highly varied: a few benefit, some are barely touched, and a great many are severely disadvantaged.
“It’s like chemotherapy,” remarked Ermias, likening the policy’s indiscriminate nature to cancer treatments that do not differentiate between healthy and cancerous cells.
“The process itself is inherently painful, impacting everything without distinction. If your income is in Birr and you consume imported goods, you’ll be particularly hard hit. However, if you’re an exporter, this is akin to winning the lottery,” he said.
Exporters are among the biggest beneficiaries. Previously, many resorted to smuggling goods like coffee and gold across borders to take advantage of black-market rates. With the float, the official rate finally caught up with reality, encouraging them to return to formal channels.
However, not everyone has emerged as a winner. Importers, especially those in sectors reliant on dollar-denominated inputs, face new challenges. Those who previously accessed foreign exchange through the official market also experienced significant losses. Most notably, fixed-income earners became helpless victims.
The Cost of Reform
Years of mounting debt, relentless forex scarcity, and a flourishing black market cornered Ethiopia into a moment of reckoning. The float, a prerequisite for unlocking a USD 3.4 billion deal with the International Monetary Fund, aimed to end chronic foreign currency shortages and restore international fiscal credibility. But as the months wore on, the currency shock rippled across every layer of the economy, reshaping prices, altering trade routes, and testing the resilience of households.
“It wasn’t painless,” Tewodros conceded. “But it was the least painful path we had.”
He has consistently advocated for currency floating as the less painful option. He believes the past 11 months have been “less catastrophic” than initially feared or compared to what transpired when similar policies were enacted in countries like Sudan and Nigeria.
“A huge market disruption happened in those countries in the early days,” he noted. “There was an assertion that the same might happen in Ethiopia, with higher inflation and a rapidly increasing parallel market exchange rate. That didn’t happen; what we’ve observed here is a relatively smoother transition.”
Ermias argues that the anti-inflationary measures have created a significant economic challenge. He stated, “In its attempt to curb inflation, the government has been compelled to tighten the supply of Birr through contractionary fiscal and monetary policies. This is where the core problem emerges: it can lead to stagflation—a combination of low economic growth and high inflation.”
Defending the reform’s necessary costs, Tewodros argues, “When someone is unwell, they must take time off work until they recover.”
Eshetu and Ermias also believe the repercussions of the policy could have been much heavier.
“The worst-case scenario—a collapsed economy—would have happened. We’ve been spared from that, relatively,” said Eshetu.
“You might question why we haven’t made greater strides, but it is important to remember we have avoided falling off a cliff,” Ermias told The Reporter Magazine.
But what has the reform actually changed? What were the gains and losses?
Liquidity–The Elephant (Not) in the Room
Near-unanimous consensus exists among experts and practitioners approached by The Reporter Magazine: the core challenge right now is not a shortage of foreign currency, but rather a lack of Birr.
“A serious challenge remains; business people frequently say they are unable to access adequate loans to conduct their operations,” Tewodros said.
Abas has noted the cash shortages, too.
“The Dollar is available, but people don’t have enough Birr to buy it. Banks aren’t offering even short-term loans. We wish to get overnight loans. That is difficult. Sometimes, you can’t even withdraw your own cash,” he told The Reporter Magazine.
Eshetu, the banking veteran, elucidated further.
“People often wonder why banks lack readily available Birr despite reporting trillions in deposits annually. What’s frequently missed is that these deposits are largely converted into long-term loans. It can take anywhere from three, five, 10, or even 15 years for that money to return to the bank,” said Eshetu. “For example, the CBE, which holds 65 percent of the industry’s deposits, has issued loans for up to 30 years. This even necessitated an international bailout from the World Bank for it to be able to return depositors’ money. The problem is too visible to ignore.”
The controversial treasury bill requirement levied on banks, reintroduced in 2022 with a 20 percent bond mandate, further exacerbates the situation
“The NBE’s concern over inflation is causing it to delay returning bonds collected from banks,” Eshetu noted. “This approach, unfortunately, perpetuates the ongoing liquidity crunch.”
A quarterly report published by the central bank in January (the most recent available) indicated that reserves stood at 473.2 billion Birr, reflecting a 1.1 percent annual contraction and a 2.5 percent quarterly expansion. Regulators chalked the decline up to tight monetary policy.
“Years ago, banks could approve around half of all loan requests. Now, many banks can barely accommodate two out of ten,” Eshetu told The Reporter Magazine. “Some have even stopped accepting loan applications altogether. Their priority is fulfilling depositors’ withdrawal requests, as failing to do so could lead to severe penalties, even license revocation.”
According to Governor Mamo, plans are in motion to discontinue the treasury bill requirement by June 2025 and remove the cap on private sector credit growth by September.
“The key point is to closely monitor the impacts of these measures on the broader economy. Maintaining balance remains critical. It is like aiming at a moving target,” said Ermias.
More People Sinking Further Below Poverty Line
While export growth and foreign reserves recovered, many Ethiopians saw little in terms of immediate benefits. In fact, fixed income earners, the urban poor, and small traders faced higher barriers to survival.
Compounding this, the currency float is also believed to have potentially driven more people below the poverty line, defined as earning less than USD 2.15 per day. Citizens who once stood above this threshold have seen their purchasing power eroded heavily, dragging them further down into the depths of squalor.
“I teach at university. Eight years ago, when I was an Assistant Professor, I used to earn USD 356 [a month]. Now, after eight years of service and being promoted to an Associate Professor, my salary is USD 99. This is not only low but also immoral.”
This powerful statement came from Dessalegn Chanie (PhD), a member of Parliament, who decried the erosion while commenting on a report from the Ministry of Education.
This is far from an isolated problem. Millions of teachers, healthcare professionals, public servants, and private sector employees have experienced the devastating effects of currency floating, with a loss of over 50 percent of their salary’s purchasing power. And for those already in poverty, the situation is frighteningly stark.
While some might contend against denominating salaries in foreign currency, considering the nation’s own currency for transactions, the undeniable truth remains: a significant portion of these citizens’ consumption consists of imported goods, as the country imports over USD 18 billion annually.
The reform was meant to carry social costs. The government had reportedly allocated close to USD 800 million to social protection and subsidies to offset these effects, especially in fuel and pharmaceutical imports
Unfortunately, politics, rather than economics, largely dictates when it comes to serving groups of the community directly and disproportionately affected by the consequences of the currency floating.
Meanwhile, despite government claims of increasing Foreign Direct Investment (FDI), the policy designed to boost investment appears to be falling short of its anticipated goals.
Ermias, who initially foresaw this policy shift significantly impacting FDI, acknowledges the effects have yet to materialize a year down the road.
“Investment decisions are multifaceted,” he asserts. “Investment, by its nature, shies away from instability; it cannot be enticed into an insecure environment, regardless of the incentives offered.”
He observes that the current climate discourages even domestic investors, let alone their foreign counterparts.
Likewise, Eshetu stressed that policy alone is insufficient to resolve the issues.
“Our unwillingness to address critical social and political crises has yielded subpar results,” he noted.
For the policy to be truly effective, experts like Eshetu argue it is absolutely critical to stop siphoning energy and resources into social and political crises that should instead be addressed with firm political commitment.
