Ethiopia's current account deficit narrowed 95% to US$ 289.3 million in the fiscal year ended June 2025, shrinking from 3.0% of GDP to 0.2% after the country launched a market-based exchange rate regime in July 2024.
- • The deficit stood at US$ 6.2 billion a year earlier data from The National Bank of Ethiopia's third Financial Stability Report shows.
- •Export earnings surged 119.2%, driven partly by FX liberalization that shifted export proceeds back into formal banking channels.
- • Private remittance inflows rose 13% with the NBE's foreign currency reserves jumping over 209% year on year, strengthening the country's external buffer, while commercial banks' reserves reached US$ 2.8 billion.
NBE introduced an interest-rate-based monetary policy framework on 9 July 2024, setting the inaugural policy rate at 15% and launching biweekly open market operations, overnight lending and deposit facilities for banks, and an electronic interbank lending platform.
Twenty days later, on 29 July 2024, the central bank issued Foreign Exchange Directive FXD/01/2024, moving to a market-based exchange rate.
The directive removed FX surrender requirements, lifted more than 30 import restrictions, abolished the Franco Valuta system, expanded exporter retention rules, allowed independent FX bureaus, and enabled foreign participation in Ethiopia's securities exchange. It also granted special FX privileges to companies in special economic zones and gave Ethiopian firms and banks easier access to foreign loans.
The parallel-official exchange rate gap, which had pushed significant FX activity outside formal channels, narrowed to within 15%.
The shift to a market-based exchange rate triggered a sharp initial devaluation of the Birr as long-standing currency controls were lifted. The official exchange rate moved from about ETB 56 per dollar in June 2024 to ETB 119.3 per dollar by June 2025, while the market rate reached ETB 143.8 per dollar by September 2025 as the currency adjusted to market conditions. The reform caused a rapid correction in the exchange rate, but it also narrowed the gap between official and parallel markets and shifted a large share of foreign-exchange trading back into the formal banking system.
Birr depreciation increased the local-currency value of external debt, pushing the ratio from 22.3% to 26.9% of GDP without any new borrowing. Domestic debt-to-GDP moved in the opposite direction, falling from 19.2% to 14.8%, while the budget deficit narrowed from 2.1% to 0.4% of GDP on improved revenue and fiscal consolidation.
Headline inflation declined to 13.9% by June 2025, down 6.0 percentage points year on year. The weighted average long-term lending rate stood at 18.0% in June 2025 (17.9% by September), while Treasury bill yields rose from 9.7% to 13.4% (15.5% by September 2025). For the first time in five years, both lending rates and T-bill yields exceeded inflation, delivering positive real returns across the banking system.
NBE's stakeholder risk survey, the first included in a Financial Stability Report, found that exchange rate movements remain the most cited near-term concern among financial sector participants (26.2% of respondents), followed by inflation (23.8%). The report recommends continued reserve accumulation, enhanced stress testing, import substitution, and increased domestic production to sustain the reform's early gains.
The economy expanded 9.2% in real terms, exceeding the IMF's October 2025 projection of 7.2% and placing Ethiopia among the world's 20 fastest-growing economies, providing early support for the macroeconomic reform programme.
