Ethiopia Budgets 13.7bn Birr in FX Gains, but the Number Only Tells Half the Story

The federal government’s 2026/27 revenue budget books a gain from currency depreciation, but leaves out what that same depreciation costs on the debt side.

The federal government expects to collect nearly 13.7 billion birr from exchange-rate fluctuations in the 2026/27 fiscal year, according to its newly published revenue budget. The figure sits under miscellaneous non-tax revenue and is presented as a straightforward gain tied to Ethiopia’s ongoing market-based foreign-exchange reform.

The amount is not small on the page. It accounts for about 41pc of the 33.38 billion birr projected from miscellaneous revenue, the largest single item in that category. Set against the government’s total non-tax revenue target of 113.33 billion birr, it accounts for roughly 12pc. Measured against the full financing plan for the year, a projected 2.01 trillion birr once foreign borrowing is included, it is a much smaller share.

Total revenue and external assistance for the year are projected at 1.82 trillion birr, with 1.49 trillion birr expected from taxes alone.

Where the Gain Comes From

Ethiopia moved to a market-based foreign-exchange system in July 2024, ending a tightly managed regime that had fixed the birr’s value for years. Commercial banks were allowed to negotiate buying and selling rates directly with customers. The shift triggered a sharp adjustment in the birr’s official value and, with it, a much larger role for exchange-rate movements in government accounts.

The mechanics are simple enough. When the birr weakens, foreign-currency grants, loans, and deposits held by the government convert into more birr than before. That conversion can register as an accounting gain, or increase the amount of local currency available from foreign-currency inflows.

But the same depreciation works in the opposite direction on the other side of the ledger. A weaker birr also raises the local-currency cost of servicing external debt and paying for imported goods and other foreign-currency obligations. Those costs do not appear in the 13.7 billion birr figure.

Why the Number Should Be Read With Caution

Experts caution against treating the projected gain as the government’s net benefit from the birr’s depreciation. It captures one side of a two-sided exposure. The budget separately anticipates 204.77 billion birr in external assistance and 193.70 billion birr in foreign borrowing for the year, of which 83.42 billion birr and 162.76 billion birr, respectively, come as direct budget support. Currency movements could lift the birr value of those inflows, but they would just as easily raise the cost of servicing the foreign-currency obligations tied to them.

The budget document itself offers little to work with. It does not identify which foreign-currency assets, transactions, or government accounts are expected to generate the gain. Nor does it clarify whether the 13.7 billion birr reflects completed foreign-exchange transactions or an accounting adjustment based on assumed movements in the birr’s value going forward. The figure is a projection, not revenue already collected.

That lack of detail makes it difficult to independently assess how the estimate was calculated or how sensitive it would be to a birr that depreciates faster or slower than assumed.

Part of a Wider Reform Push

The foreign-exchange liberalisation sits at the centre of the economic programme backed by the IMF’s four-year, 3.4 billion-dollar Extended Credit Facility, approved in July 2024. The programme is built around closing the gap between official and parallel-market exchange rates, easing chronic foreign-currency shortages, improving export competitiveness and strengthening Ethiopia’s external position.

The National Bank of Ethiopia has continued to adjust foreign-exchange rules since the reform began, including changes to market operations and to the fees applied to foreign-currency transactions.

That an exchange-rate gain now appears as a distinct federal revenue line signals how directly currency movements are expected to feed into the government’s reported income going forward. Whether the 13.7 billion birr projection holds up will only become clear once the fiscal year is underway and realised gains can be measured against what the budget assumed.

source: Birrmetrics