A year ago, Ethiopia boldly liberalized its foreign exchange (FX) market, a move many perceived as ambitious and risky. One year later, the significant progress made is clear, as the reform’s promise for Ethiopia’s economic future continues to materialize. This foundational shift is not merely about economic metrics, it represents a crucial step towards greater economic self-reliance and integration into the global financial system.
The shift to a market-driven exchange rate has already yielded early benefits. Foreign exchange reserves have tripled over the past year, reaching an estimated USD 3.6 billion. This provides crucial breathing room for imports and enhances macro-economic stability¹. In addition, distortions that had long hampered trade and investment have been reduced as the gap between the official and parallel FX markets narrowed dramatically². This narrowing gap signals increased confidence in the formal financial channels, deterring illicit currency transactions and fostering a more predictable business environment.
Consequently, Ethiopia’s exports have surged. Coffee earnings increased by nearly 70 percent late last year, while gold exports quintupled, significantly boosting foreign currency inflows³. As more inflows shifted from informal to formal channels, remittances climbed by about 145 percent in the months following the reform. Inflation, which initially spiked to over 30 percent in 2024, has since eased to around 13 percent as of March this year, with forecasts pointing to a further decline toward the 10 percent mark in the 2025/26 fiscal year⁵. This disinflationary trend is vital for protecting the purchasing power of Ethiopian citizens and encouraging long-term investment, providing a more stable economic outlook.
These results echo what we have seen elsewhere on the continent. Kenya’s experience is a powerful case in point. When Kenya liberalized its FX regime in the early 1990s, the country experienced a rapid increase in remittance inflows. Today, remittances exceed $4 billion annually, making them the largest source of foreign exchange for Kenya⁶. The move also helped Kenya attract consistent foreign investment and strengthen Nairobi’s role as a regional financial hub. Crucially, FX liberalization in Kenya gave exporters and the private sector a competitive edge, enabling businesses to integrate more effectively into global markets. Kenya’s sustained success serves as an encouraging blueprint, demonstrating that initial reforms, when coupled with sustained policy commitment, can unlock decades of economic growth and regional leadership.
Ethiopia is already showing similar signs. The FX reform has not only boosted exports and reserves but also built the foundations for a more transparent and buoyant financial system. With the launch of the Ethiopian Securities Exchange, the country is sending a clear signal that it is open for business and committed to private-sector-led growth. The establishment of such a key financial institution underlines Ethiopia’s commitment to creating a robust capital market, essential for mobilizing domestic and international capital.
At Citi, we have supported this transition through banking services and capacity building. This year, we hosted an FX Bourse Game in Addis Ababa, gathering participants from leading local financial institutions and the National Bank of Ethiopia. The simulation gave participants first-hand experience of how liberalized FX and money markets function, covering FX pricing, money market operations, and risk management strategies. By preparing financial institutions for this new landscape, we are helping to ensure that Ethiopia’s reform momentum translates into sustainable growth. Our role extends beyond advisory, we are actively investing in the human capital and institutional frameworks necessary to ensure these reforms are deeply embedded and resilient.
Looking ahead, the opportunity is clear. If Ethiopia stays the course, as Kenya did three decades ago, the country could emerge as one of Africa’s most dynamic financial markets, attracting long-term capital, stimulating exports and importantly, giving Ethiopians greater access to economic opportunity. The potential for job creation and improved livelihoods for a broad segment of the population underscores the profound societal benefits that can stem from sound economic policy.
Ethiopia’s FX reform has shown that bold policy moves, when paired with strong institutions and active market engagement, can deliver real and measurable progress. This ongoing journey positions Ethiopia not just as a participant in the African economic narrative, but as a potential leader, setting a precedent for others contemplating similar ambitious reforms.
Akin Dawodu, Head of Sub-Saharan Africa, Citi
Contributed by Akin Dawodu
