The state of Ethiopia’s economy

Ethiopia's economy is facing a significant transformation that is set to reshape the country's financial landscape. The recent approval of an IMF program and the devaluation of the local currency are key factors impacting the economy. In a recent interview with CNBC Africa, Mered Fikireyohannes, CEO of Pragma Capital Investment Advisory, shed light on the state of the economy and the changes underway. The Ethiopian government announced a major shift in the forex regime, moving towards a market-based system where the birr is traded based on market dynamics rather than a government-set price. This move has led to a convergence of the official and parallel market rates for the birr, signaling a correction in the forex market. Despite initial market shocks, the adjustment is leading to more efficient trading and reduced reliance on the parallel market for key imports. The devaluation of the birr has had an impact on traders and the diaspora, with a shift towards the official market for essential items such as fuel, medicine, and fertilizers. While the market is still stabilizing, the government's focus on market correction rather than devaluation is aimed at creating a more balanced and transparent trading environment. In addition to the forex reforms, Ethiopia's capital markets are undergoing significant changes as the country aims to establish a functional capital market. The Ethiopian Securities Exchange is set to launch in the coming months, marking a new chapter in the country's financial sector. The move is expected to enhance liquidity, facilitate capital creation, and drive economic growth. As part of the broader economic reforms, the banking sector in Ethiopia is also set for liberalization, opening up opportunities for investment banks to enter the market. The regulator is working to create a conducive environment for investment banks to thrive, ensuring that the financial sector can support the country's evolving economy. With these developments on the horizon, Ethiopia is poised for a major transformation in its financial system, paving the way for a dynamic and competitive economic landscape in the years to come.