Despite the value of birr depreciating every year by about 25 percent in the past few years, the government reaffirms that official devaluation will not transpire.
One of the hotly debated talks around town has been that government is under preparation to introduce a new round of devaluation on the birr against major hard currencies.
Some experts in the private sector and financial industry had put forth various notions stating that the government may apply a devaluation approach as like in 2010 and 2017 as a result of a push from global partners like the International Monetary Fund (IMF).
A big private manufacturing industry leader, who has vast experience in the financial sector, argues that international partners would provide support in connection with the peace deal agreed upon by the central government and the rebels in Tigray.
“When you get a fund as a nation, the state is also required to fill its macroeconomic position and revenue through different instruments, for instance, by emplacing a suitable fiscal policy. But when the country fails to fill or improve the revenue gap through tax or other instruments it may probably be forced to devalue the birr against international major currencies to keep the value of birr appropriate with hard currencies,” he told Capital.
On the other hand, some other sector actors argued that the government would not follow the previous experience of applying devaluation.
Of the lot believing that government will not take such measures is Eshetu Fantaye, President of Ahadu Bank, who stated that he does not expect the government to devalue the birr.
“I don’t expect government to resort to undertaking official devaluation but definitely crawling depreciation will happen,” Eshetu told Capital a couple weeks ago.
The president of one of the newly formed financial firms also recalled that in the past few years, the government had been following a policy to depreciate birr on a daily basis with gradual approach.
The bank president who demanded anonymity said that on average, the government depreciated the local currency by 25 percent every year. So if the devaluation would happen the change must be very big, he underlined stating, “In my view the government will follow through with the measures that is has been applying for the past three years.”
On his latest tweet, Eyob Tekalegn, State Minister of Finance and Board Member of the National Bank of Ethiopia, stated that there is widespread rumors that devaluation is in the making, “This is just a rumor. Completely unfounded.”
“A sensible macro reform is always our agenda but there should not be any concern about mere devaluation,” he said.
In 2010 and 2017 the government applied a 17 and 15 percent depreciated respectively, whereas when the reformist government came to power in 2018 it introduced the Homegrown Economic Reform Agenda (HERA), a three year economic plan applied from September 2019. The new government said that it will follow the fast depreciation until the exchange market gets to be governed by the free market by the end of the program, which currently has ended with HERA 2 being on the way to be introduced.
Because of the local and international pressure on the economy, the government was unable to apply a market led exchange rate as per the HERA. It is expected that the new exchange rate policy would be applied in the second HERA.