World Bank Paper: Ethiopia’s Full FX Float Deepened Poverty, Not Eased It

A World Bank policy paper argues that Ethiopia’s move to a fully market-determined exchange rate deepened poverty rather than reducing it, a conclusion that puts the paper at odds with the World Bank’s own recent public messaging on the reform. The paper cites Egypt and Nigeria as similar cases, but its sharpest scrutiny falls on Ethiopia.

The paper, titled Public Debt and Central Banks, was written by David Malpass, who led the World Bank as president from April 2019 to June 2023. It was delivered as the Stanley Fischer Memorial Lecture at the World Bank’s Annual Bank Conference on Development Economics (ABCDE) in 2026 and published on the Bank’s website as a Policy Research Working Paper. The currency argument is one part of a broader lecture focused mainly on sovereign debt and central bank policy, including a separate warning about opaque, collateral-backed borrowing by governments such as Nigeria, Angola, and Senegal.

On exchange rates, the paper argues that allowing the birr to float without restriction transferred wealth toward asset-rich groups while leaving low-income Ethiopians to absorb the cost, worsening poverty instead of easing it.

According to the paper, an alternative existed. Rather than moving to a fully market-driven rate in one step, as recommended by the International Monetary Fund, the National Bank of Ethiopia could have depreciated the birr more gradually, keeping prices and incomes more predictable for lower-income households. It also argues that digital payment fees should have been kept low and transfer speeds increased so citizens could move money cheaply and quickly, and that the central bank could have managed currency purchases and sales in ways that protected domestic money circulation.

Malpass writes that he personally opposed the shift to an unrestricted float while in office. He recalls meeting Prime Minister Abiy Ahmed (PhD) during a 2019 visit to Ethiopia, when the birr had already depreciated by 28 percent and the foreign exchange system carried multiple rates. He says he worked alongside Kristalina Georgieva, who served as the World Bank’s interim president from February to April 2019 and later became IMF managing director, to press the government against a fully market-driven system. The effort did not succeed. Malpass writes that the exchange rate was ultimately allowed to float without restriction.

The birr has weakened sharply since. It traded at about 56 to the US dollar in 2024 and has fallen to roughly 160 in 2026. The paper places that trajectory alongside Egypt, where the pound moved from about 15 to the dollar in 2022 to roughly 50 in 2026, and Nigeria, where the naira moved from about 461 to the dollar in 2023 to roughly 1,350 in 2026, arguing that all three cases followed a similar IMF-backed liberalization path with similar poverty consequences.

Citing earlier World Bank data, the paper states that Ethiopia’s poverty rate climbed to 43 percent by 2025, driven by sustained currency depreciation, a widening gap between exchange rates, eroding purchasing power of the birr, declining external financing, and reduced domestic money circulation. Separately, the World Bank’s own Ethiopia country overview shows poverty rising from 27 to 32 percent between 2016 and 2021, attributing that earlier increase to an overvalued currency, unsustainable debt, and investment-limiting regulation under the prior state-led growth model. The paper argues that IMF and central bank pressure to move to a fully market-driven system, combined with looser rules on the types of foreign exchange transactions permitted, was a central driver of Ethiopia’s continued rise in poverty after 2021.

The paper also notes the scale of the World Bank’s footprint in Ethiopia, citing 200 Bank-financed projects in the country, 44 of which are currently active. It puts Ethiopia’s per capita income at 1,100 dollars, noting the country remains classified among the world’s poorest.

Malpass writes that the gains from currency depreciation tend to flow to individuals close to government power, while the losses fall on citizens already in poverty, particularly those paid in birr who also carry the burden of servicing IMF-linked debt. He argues that growth requires currency stability and low transaction costs rather than open-ended depreciation.

That assessment sits uneasily alongside the current public position of the IMF under Georgieva, who has repeatedly described Ethiopia’s full market-based FX regime as producing results, including improved competitiveness, rising foreign exchange reserves, and stronger investment inflows since the reform took effect.

The World Bank has not issued a separate statement addressing the currency and poverty argument, and its poverty and depreciation figures for Ethiopia, drawn from the paper and from the Bank’s own country data, have not been independently verified by Banks Ethiopia. The split the lecture exposes, between a former World Bank president’s retrospective critique and the IMF’s ongoing public defense of the same policy, is likely to sharpen scrutiny of Ethiopia’s exchange rate liberalization as the government continues to lean on Fund-backed reforms.