Ethiopian currency birr (USD/ETB) has tanked and it is not alone

By:
on Dec 11, 2023
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  • The Ethiopian birr has crashed to the lowest level on record.
  • Ethiopia is set to be the latest country to default on its bonds.
  • The government is negotiating with bondholders.

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The Ethiopian currency has plunged to a record low against the US dollar and other currencies as woes in the country continued. The USD to ETB exchange rate surged to a high of 55.67 on Monday, much more than the YTD low of 53. The pair has jumped by more than 100% in the past five years.

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The Ethiopian birr crashed as the country neared its first coupon miss as the economy faces numerous internal and external shocks. In a statement on Friday, the government warned that it was not able to pay the coupon, worth about $33 million. 

USD/ETB chart

As a result, the government has been attempting to negotiate with its external creditors. The goal is to reduce the interest of its sovereign bonds while extending the duration of payments. According to Bloomberg, Ethiopia has been unable to reach an agreement with these holders.

Therefore, there is a likelihood that Ethiopia will join other countries like Sri Lanka and Ghana that have defaulted on their international obligations. This explains why the price of its $1 billion bond rose to 75 cents on the dollar on Monday.

Ethiopia’s bond default comes after years of rapid growth that has pushed its total GDP to over $111.3 billion. In 2000, the country had a GDP of just $8.42 billion. This growth happened as the government used borrowed funds to build large-scale infrastructure projects, including the Grand Renaissance Dam. 

Ethiopia’s woes are a culmination of internal and external factors. Externally, like all emerging market countries, Ethiopia was hit hard by the Covid-19 pandemic that affected its transport and tourism industries.

Internally, the country has gone through a major war that led to thousands of death. While the war ended a year ago, its impact on the economy still remains.

Ethiopia is not the only African country whose currency is crashing. In Nigeria, the naira has plunged to over 1,400 against the US dollar in the black market. It started the year at 700. 

In Kenya, the shilling has been in a freefall as the government has struggled to fund its operations. In a statement last week, the Minister of Finance warned that the government was essentially broke. 

Kenya has now been forced to take expensive IMF loans and raise taxes, which have hurt its recovery. The Central Bank delivered a 200-basis point rate hike in a bid to save the plummeting currency. Kenya will make its first installment of its $2 billion coupon in December.

In Zambia, the kwacha has also been surging as the country has had cash flow problems. The USD/ZMW pair surged to 24.50, up from the YTD low of 17. The Angolan kwanza has crashed to 840.

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