Ethiopia's grand experiment with forex reform just cost its central bank $2.6 billion. That's not a typo. The National Bank of Ethiopia recorded losses of 407.1 billion birr after shifting from a fixed to market-based foreign exchange system in July 2024. Welcome to the wonderful world of IMF-backed reforms.
The damage is staggering. Total operating losses for the 2024/25 fiscal year hit 428.56 billion birr, up from just 10.51 billion the previous year. The central bank now sits in negative equity of 380 billion birr. Not exactly the outcome anyone advertised when championing these reforms as part of Ethiopia's Homegrown Economic Reform Agenda.
What caused this financial carnage? Unrealized losses from revaluing foreign currency assets and liabilities at new market rates. When the birr tanked against foreign currencies, the central bank's balance sheet exploded.
ME Audit Service LLP, the firm that audited the statements, warned these losses could crystallize when obligations come due, threatening the bank's solvency. That's audit-speak for “this could get much worse.”
The reforms were part of a 48-month Extended Credit Facility with the IMF, totaling about $3.4 billion. The program aimed to address macroeconomic imbalances and boost private sector growth by enhancing FX markets and modernizing monetary policy. High-minded goals, painful execution.
Here's the twist. Despite the massive losses, the IMF points to “better-than-anticipated macroeconomic results.” Reserves are projected to reach 3.9 months of imports. The fiscal balance improved. Public debt is declining. Real effective exchange rate depreciated 44.2 percent. By some metrics, the reforms are working.
But that $2.6 billion loss raises uncomfortable questions about the central bank's ability to maintain financial stability. The NBE is now conducting a capital assessment to safeguard operations, which sounds reassuring until you remember they're starting from negative equity. Effective central bank intervention in foreign exchange markets requires adequate capital buffers and institutional capacity to manage currency volatility.
The fourth review of the IMF program was completed in January 2026, with performance broadly meeting targets. The reform momentum continues, losses and all. Ethiopia bet big on forex liberalization. Understanding the legal frameworks and regulatory standards that govern such foreign exchange trading activities becomes crucial as the country navigates this turbulent transition. Countries with complex currency systems like China's dual onshore and offshore markets demonstrate how varying exchange rate mechanisms can produce dramatically different outcomes for central bank balance sheets. The bill just arrived.
