CURRENCY CRISIS: ETHIOPIAN BIRR NOW WORLD’S THIRD WEAKEST

By Economic Analysis Desk, Ethiopian Tribune
May 14, 2025

The Ethiopian Birr has fallen to become the world’s third-weakest currency, according to a recent international financial assessment that has sent shockwaves through the nation’s economic circles. This troubling development reflects the culmination of long-standing economic vulnerabilities and political instability that have plagued the country in recent years.

Our analysis reveals that only the Venezuelan Bolívar and Zimbabwean Zig now rank below the Birr in terms of currency strength, placing Ethiopia in concerning company among nations experiencing severe economic distress.

Multiple Factors Behind the Decline

The currency’s dramatic depreciation can be attributed to a complex interplay of factors, according to financial experts consulted by the Ethiopian Tribune.

The ongoing conflict in Amhara region has proven particularly devastating to economic stability. “When productive regions become battlegrounds, the entire economic ecosystem suffers,” explained Ato Yohannes Tadesse, an independent economic analyst based in Addis Ababa. “Foreign investors retreat, domestic production falters, and currency value inevitably follows.”

Similar conflicts across Amhara, Tigray, and Oromia regions have compounded these effects, creating economic dead zones where normal commerce has become nearly impossible.

Meanwhile, the National Bank of Ethiopia’s monetary policies have come under intense scrutiny. The bank’s persistent practice of artificially maintaining the Birr’s value against the dollar has created what experts describe as an “unsustainable illusion” in the foreign exchange market.

“The gap between official and black market rates has created a parallel economy that undermines legitimate business,” noted Dr. Hiwot Mengistu, Professor of Economics at Addis Ababa University. “When central bank policy doesn’t reflect economic reality, market forces eventually prevail—often with painful consequences.”

Projections Show Further Decline

International economists project a further 27% depreciation against the dollar by year’s end if current trends continue—a scenario that would bring additional hardship to import-dependent sectors.

The shortage of foreign currency reserves has reached critical levels, with businesses reporting wait times of up to eight months for official foreign exchange allocations. This scarcity has crippled industries reliant on imported materials and equipment.

Historical Context

This currency crisis represents the latest chapter in Ethiopia’s challenging economic journey. Since 2015 EC (2022/2023 Gregorian), the nation has faced a perfect storm of challenges: political instability, armed conflicts, severe drought conditions, and mounting external debt obligations.

Government spending priorities have further complicated the situation. In 2021 alone, approximately 40 billion Birr was directed toward climate initiatives, including the Green Legacy reforestation campaign. While environmentally significant, such expenditures have diverted resources that might otherwise have supported currency stabilization efforts.

Government Response

The Ministry of Finance has announced a series of measures aimed at strengthening the Birr, including reforms to foreign exchange management and gradual trade liberalization. However, these initiatives face significant obstacles.

“Policy reforms on paper mean little without addressing the underlying political instability,” cautioned Ato Dawit Gebre, former advisor to the Ministry of Finance. “Currency stability requires investor confidence, which in turn demands political predictability.”

Path Forward

Unlike Venezuela and Zimbabwe, Ethiopia maintains substantial economic potential through its agricultural base and youthful population—advantages that could facilitate recovery under the right conditions.

However, meaningful improvement will require comprehensive action on multiple fronts: resolving internal conflicts, implementing transparent monetary policies, restructuring external debt, and creating conditions conducive to both domestic and foreign investment.

As ordinary Ethiopians continue to bear the brunt of this currency crisis through rising prices and scarcity of imported goods, the pressure on authorities to enact meaningful reforms grows more urgent by the day.

“The Birr’s fate is ultimately tied to Ethiopia’s broader governance challenges,” concluded Dr. Mengistu. “Until these are addressed systematically, temporary measures will offer little more than momentary relief.”

The Ethiopian Tribune will continue monitoring this developing economic situation with further analysis in the coming days.