Addis Abeba — It has been a year since the Ethiopian government officially launched a comprehensive macroeconomic reform program aimed at addressing long-standing structural imbalances in the economy. The reform program includes transitioning to a market-based exchange rate regime to correct external imbalances and alleviate persistent foreign exchange shortages. Additionally, the government has sought to combat inflation by modernizing the monetary policy framework, phasing out monetary financing of the budget, and reducing financial repression. Another key objective of the reform has been to generate fiscal space for priority public spending by strengthening domestic revenue mobilization.
A pivotal element of the reform was the abandonment of the crawling peg exchange rate system, a policy that had been in place for over three decades, in favor of a market-based foreign currency regime. The immediate market reaction was stark: within a day of the new regime's announcement, the state-owned Commercial Bank of Ethiopia (CBE) reported a sharp 30% depreciation of the birr against the US dollar, plunging from 57.48 to 74.73 birr per dollar. Rapid depreciation has continued significantly, with the exchange rate currently reaching as high as 136 birr per dollar at commercial banks. As a result, the Ethiopian birr has depreciated by a substantial 138.6% against the US dollar within a year of the macroeconomic reform program's implementation.
Government officials have consistently emphasized that these reforms are designed to effectively capture and repatriate Ethiopia's full foreign earnings potential, ultimately benefiting its citizens and productive sectors. This sentiment was recently reiterated by Prime Minister Abiy Ahmed during his appearance before the House of Peoples' Representatives. As evidence of the success of the ongoing macroeconomic reforms, the Prime Minister highlighted Ethiopia's foreign exchange earnings in the 2024/25 fiscal year, which reached a total of $32 billion from all sources--including commodity and service exports, remittances, foreign direct investment (FDI), loans, and aid. This figure represents a 33% increase over the previous year's $24 billion. According to the Prime Minister, this influx of foreign currency has led to a $4 billion improvement in the current account deficit, and critically, the Balance of Payments (BoP) registered a surplus of $2.6 billion, a notable turnaround after more than a decade of deficits.
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"The reform brought success more than the expected peace," stated Abiy, specifically noting that export revenues in the last fiscal year surpassed the $8 billion mark. He described this as "an impressive achievement" when compared to both the planned target of $5.1 billion and the previous year's export revenue of $3.8 billion.
Such progress is indeed commendable for a nation like Ethiopia, which has long grappled with chronic foreign currency shortages and persistent deficits in both its current account and balance of payments. While government officials primarily attribute these gains to macroeconomic reforms, it is crucial to examine other contributing factors. Understanding the role of these additional elements--some of which may hold comparable significance to the reforms--is essential for accurately evaluating the broader economic dynamics at play and for ensuring the continued sustainability of these achievements.
By examining Ethiopia's top export commodities--coffee and gold--which together accounted for 77.5% of total export revenues in 2024/25, this commentary highlights how the record-high international prices for both commodities, observed between August 2024 and July 2025, significantly contributed to the surge in export earnings. Furthermore, it examines whether the significant export revenue growth, partly driven by the birr's steep depreciation under the newly adopted market-based exchange rate regime, reflects a sustainable long-term trajectory or merely a temporary uplift.
Coffee, gold earnings jump as global prices break records
Shifts in international market conditions often exert a direct and significant influence on a country's export earnings. This was clearly evident in Ethiopia's export performance during the last fiscal year, particularly in the significant surge in export revenues from both coffee and gold throughout 2024/25.
According to official data, Ethiopia earned $2.65 billion from shipping 469,000 tons of coffee during the recently concluded fiscal year. Compared to the previous year, this represents a staggering 147% increase in value and a 144% rise in volume--an exceptional performance by any measure. This remarkable growth, however, coincided with historically unprecedented coffee prices globally.
.....the impressive gains in export revenue, particularly from coffee and gold, aren't solely a triumph of domestic policies and reforms."
Between August 2024 and July 2025, the international price for raw Arabica coffee began at $5.5 per kilogram, surged to a record $9.7 in February 2025, remained elevated around $9.1 until April, and then moderated to $6.9 this month. A review of historical data compiled by Trading Economics reveals that there is no recorded instance of raw Arabica coffee prices in the international market exceeding the $6 mark--let alone reaching $9.7, as observed in February 2025. This price level represents an unprecedented peak in the history of Arabica coffee futures.
Data obtained from the same source also indicate that the most recent peak in Arabica coffee prices before 2025 occurred in March 2022, when prices reached approximately $5.8 per kilogram. In contrast, the long-term average price for Arabica coffee over the past few decades has typically ranged from $2 to $3.3 per kilogram. Even during the global coffee crisis of the early 2000s or the notable price spike in 2011, prices never surpassed $5.5 per kilogram.
Given this context, it is reasonable to conclude that the unprecedented surge in international coffee prices between August 2024 and July 2025 was a major contributor to the doubling of Ethiopia's coffee export revenue. In fact, I would argue that this windfall likely played a role as significant as the depreciation of the local currency, which followed the transition to a market-based exchange rate regime.
This is not to diminish the significance of the government's efforts--such as modernizing the coffee value chain, diversifying export markets, granting licensed farmers direct export rights, and the ambitious planting of over eight billion coffee seedlings under the Green Legacy Initiative. However, given that coffee export earnings rose only modestly from $854 million to $1.4 billion over the preceding three years, attributing the entire 147% value jump in 2024/25 solely to these initiatives and the reform risks overlooking global market dynamics--factors that are likely to have greater implications for future coffee export performance.
Reports suggest that the 2024/25 coffee price surge--including the record $9.7 per kilogram in February 2025--was driven by a combination of supply-side constraints, higher production costs, and geopolitical disruptions. Among the most significant factors were poor harvests and supply shortages in major coffee-producing countries. Brazil, the world's largest producer of Arabica coffee, experienced what is known as an "off year" in its biennial production cycle, naturally resulting in lower output. Vietnam, another major Robusta producer and an important player in the global coffee trade, also faced prolonged drought conditions that significantly reduced its coffee production and exports last year. Additionally, the ongoing effects of the Russia-Ukraine war disrupted global fertilizer supplies--particularly potash--leading to a sharp increase in the cost of agricultural inputs and, consequently, higher production costs for coffee farmers worldwide.
However, the global market outlook is currently shifting. Major producers like Brazil and Vietnam are now reporting improved harvests, aided by favorable weather and enhanced agricultural practices. Consequently, market predictions suggest Arabica coffee futures could decline by approximately 30% by the end of 2025. Reinforcing this trend, the World Bank's latest Commodity Market Outlook forecasts a further drop of at least 15% in Arabica prices for 2026.
Understanding these evolving dynamics in global supply and demand is therefore critical for Ethiopian policymakers as they assess the potential trajectory of Ethiopia's coffee export earnings in the coming years. A clear understanding of the external factors driving current export earnings is essential not only to contextualize recent successes but also to craft forward-looking strategies that mitigate the risks of a potential downturn in international coffee prices.
Earnings from gold exports also played a significant role in driving the overall improvement in export performance during the last fiscal year. In his recent address to parliament, Prime Minister Abiy disclosed that the country earned $3.5 billion by exporting 37 tons of gold--an amount substantially higher than the previous figures of just four tons and $300 million in revenue.
Mirroring the trajectory of coffee, gold prices also experienced a significant rally on international markets between August 2024 and July 2025. It began the period at $2,387 per ounce and continued to rise steadily, reaching an unprecedented peak of $3,500 in April 2025--an all-time high that significantly exceeded even the most optimistic market forecasts. By July 2025, the price had settled at $3,367 per ounce, indicating that gold maintained a strong overall performance throughout the fiscal year.
According to information obtained from reliable sources, including Trading Economics, April 2025 marked the first and only time in history that gold prices reached $3,500 per ounce. Prior to this, the previous nominal high was recorded in December 2024, when prices hit approximately $2,720 per ounce. That spike was largely driven by global economic uncertainty, persistent inflation, and increased gold purchases by central banks. Before that, the last major peak occurred in August 2020, during the height of the COVID-19 pandemic, when gold traded at around $2,075 per ounce. Historically, gold had never crossed the $3,000 threshold in nominal terms--until 2025.
Given this backdrop, it is reasonable to conclude that the unprecedented surge in international gold prices between August 2024 and July 2025 was one of the primary drivers behind the dramatic increase in Ethiopia's gold export revenues. This price boom may have had an impact comparable to the effect of the birr's significant depreciation following the country's shift to a market-based exchange rate regime.
That said, it is also important to acknowledge the domestic initiatives that contributed to the improved performance in gold exports. These include the government's introduction of equipment financing schemes enabling small-scale miners to access modern machinery, targeted training programs, and enhanced regulatory efforts to curb illegal gold trading. While these measures played an important role, attributing a more than tenfold increase in gold export earnings in a single year solely to these factors--and to the macroeconomic reform--risks overlooking critical global dynamics that may have had a more immediate and profound influence.
According to various reports, the record-breaking surge in gold prices during this period--culminating in the $3,500 per ounce milestone in April 2025--was the result of what analysts have described as a "perfect storm" of interconnected global economic, political, and financial developments. One of the primary catalysts was a new wave of protectionist trade policies introduced by the United States, most notably President Donald Trump's announcement of sweeping global tariffs, including a staggering 145% tariff on Chinese imports. This move triggered widespread market anxiety and revived fears of a global trade war and potential recession. In response, China imposed retaliatory measures, further escalating tensions and destabilizing global trade flows.
Beyond trade, deteriorating diplomatic relations, ongoing conflicts--most notably the protracted war in Ukraine--and rising tensions in volatile regions such as the Middle East significantly heightened global uncertainty. In such times of geopolitical instability, gold traditionally serves as a safe-haven asset, prompting investors to shift capital away from riskier assets and into gold as a hedge against economic and political volatility.
In addition, central banks around the world--particularly in China and other emerging economies--dramatically increased their gold purchases during this period. This trend had been building since the freezing of Russian central bank assets in 2022, which served as a wake-up call for many countries. In response, nations began to diversify their foreign exchange reserves away from U.S. Treasuries and other Western assets, turning instead to gold as a more secure and sovereign store of value, less vulnerable to sanctions or currency fluctuations.
For Ethiopian policymakers, understanding and monitoring these global trends--especially those that influence the supply and demand dynamics of gold--is crucial for forecasting future export earnings and developing strategies to mitigate the impact of a potential price slump.
Rapid currency depreciation delivers now, but for how long?
In addition to monitoring and analyzing international market factors that directly affect the performance of Ethiopia's major export commodities, it is equally important to assess the impact of the significant depreciation of the local currency resulting from the transition to a market-based exchange rate regime. Understanding this dynamic is essential in determining whether recent improvements in export performance are likely to persist in the long term.
In the long term, and particularly within the Ethiopian economic context, the anticipated advantages of currency devaluation on export earnings have not fully materialized."
Currency devaluation (or rapid depreciation) refers to a decline in the value of a country's currency relative to foreign currencies. It is often employed as a policy tool to enhance export competitiveness by making domestically produced goods more affordable to international buyers.
The relationship between currency devaluation (or depreciation) and export earnings is a complex and frequently debated subject. Nevertheless, conventional economic theory, notably the Marshall-Lerner Condition, posits that currency devaluation can positively influence a country's trade balance under certain conditions. When a country devalues its currency, each unit of domestic currency buys less foreign currency. For instance, if the birr is devalued against the US dollar, it means more birr are required to purchase one USD. This makes Ethiopian exports more affordable in foreign markets, as foreign buyers can spend less of their own currency to obtain Ethiopian goods and services, thereby theoretically increasing demand. Conversely, devaluation makes imports more expensive in local currency. As Ethiopian consumers and businesses face higher costs for imported goods, they are likely to reduce imports and shift toward domestic alternatives. This dynamic is expected to increase export volumes and, as a result, boost overall export earnings.
Ethiopia has implemented several currency devaluations, often following recommendations from international financial institutions such as the International Monetary Fund (IMF) and the World Bank. These measures were primarily aimed at enhancing external competitiveness and addressing persistent foreign exchange shortages.
One of the most notable devaluations occurred in October 1992, when the Ethiopian birr was devalued by a substantial 142%, shifting from 2.07 birr to 5 birr per USD. Studies indicate that this initial, significant devaluation was followed by an increase in the export volumes of key commodities such as coffee and khat. For example, coffee exports rose from 32,249 tons in 1991 to 67,052.03 tons in 1992. Khat exports also experienced a marked increase during the same period.
In September 2010, the birr was devalued by 16.7%--from 13.62 to 16.35 birr per USD, with the goal of alleviating foreign exchange shortages and improving export competitiveness. According to the report by the National Bank of Ethiopia (NBE), export earnings rose by 34% in the 2010/11 fiscal year compared to the previous year.
Another devaluation took place in October 2015, when the birr was reduced in value by over 10%. As noted in the IMF's 2016 Article IV Consultation Report, export revenues increased from $2.8 billion in 2014 to $3.2 billion in 2016.
In 2019, Ethiopia adopted a partial float of the birr and permitted a controlled devaluation in an effort to ease chronic foreign exchange shortages. According to the World Bank's Ethiopia Economic Update (2020), export earnings grew by approximately 12% year-on-year during the 2019/20 fiscal year.
In Ethiopia's case, currency devaluation (rapid depreciation) has generally led to a short-term increase in export earnings. Historical examples from 1992, 2010, 2015, and 2019 support this trend. However, the benefits tend to be temporary, with longer-term sustainability remaining a challenge.
In the long term, and particularly within the Ethiopian economic context, the anticipated advantages of currency devaluation on export earnings has not fully materialize due to several inherent structural factors. A primary reason for this limited impact is the lack of export commodity diversification. With the exception of the past fiscal year, during which gold emerged as a significant export commodity, Ethiopia's export portfolio has historically been heavily concentrated in a select few primary agricultural goods, notably coffee, oilseeds, and khat. When a nation is reliant on such a narrow array of export commodities, its capacity to effectively respond to augmented foreign demand becomes inherently constrained. While devaluation can render exports more affordable in international markets, if producers are unable to rapidly increase output due to capacity limitations, the overall export volume--and consequently, earnings--will not experience substantial growth over the long term.
Understanding the evolving dynamics in global supply and demand is critical for Ethiopian policymakers as they assess the potential trajectory of Ethiopia's export earnings in the coming years."
Studies further underscore that devaluation achieves its greatest efficacy when coupled with a diversified, flexible, and value-added export base. Without such diversification, a given economy cannot fully leverage the benefits of a weaker currency, leaving export earnings susceptible to external shocks and supply constraints. A study titled "The effects of currency devaluation on Ethiopia's major export commodities: The case of coffee and khat," published in 2023, highlights that since Ethiopia's export commodities are "price-inelastic agricultural products" in nature, devaluation may not lead to a significant rise in export volume in the long run.
The second structural issue is the limited price competitiveness of Ethiopia's export commodities. Even with lower prices resulting from devaluation, Ethiopia faces intense competition in global markets, where many producers offer similar goods. Under such conditions, the country's ability to capture significantly larger market share based solely on price advantages is limited. For example, Ethiopia competes in the global coffee market alongside the world's leading exporters--Brazil, Vietnam, Colombia, and Indonesia--which collectively ship approximately five million tons of coffee annually. In comparison, Ethiopia's current export volume of 469,000 tons is relatively modest and unlikely to significantly influence global market dynamics when weighed against the combined strength of these top four coffee-exporting nations.
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A third critical factor is the impact of high inflation and the appreciation of the real exchange rate. Devaluation or rapid currency depreciation often fuels domestic inflation--a pattern observed in Ethiopia, especially following the implementation of broad macroeconomic reforms last year. As the cost of imported goods, including consumer products and raw materials, rises, these increases are passed on to consumers and producers, contributing to overall inflation. If domestic inflation exceeds the rate of nominal currency depreciation, the real effective exchange rate may not depreciate as intended--or may even appreciate. This erodes the competitiveness gained through nominal devaluation, ultimately making exports more expensive in real terms and undermining the intended economic benefits. A 2017 World Bank report titled "Ethiopia: Impacts of the Birr Devaluation on Inflation" notes that "the larger the exchange rate pass-through to the Consumer Price Index, the lower will be the beneficial real effects of the devaluation."
Lastly, structural bottlenecks continue to hinder the performance of Ethiopia's export sector. Persistent challenges--such as underdeveloped infrastructure, inefficient customs procedures, bureaucratic delays, and limited industrial capacity--restrict exporters' ability to scale up production and diversify their offerings. These systemic issues further limit the long-term effectiveness of currency devaluation (rapid depreciation) as a tool for boosting export performance.
Conclusion
The just concluded fiscal year has certainly brought significant shifts to Ethiopia's economic landscape, marked by ambitious reforms and a notable surge in foreign exchange earnings. The government's push for a market-based exchange rate regime has undeniably shaken the status quo--and, in the short term, produced striking headline figures. A record $32 billion in foreign currency inflows, a long-elusive balance of payments surplus, and a dramatic rise in export revenues all point to meaningful momentum. However, a deeper dive reveals that the impressive gains in export revenue, particularly from coffee and gold, aren't solely a triumph of domestic policies and reforms. The extraordinary, and perhaps unsustainable, rally in international commodity prices played an undeniably powerful role, a "perfect storm" of global dynamics that significantly boosted Ethiopia's coffers.
While the birr's depreciation under the new exchange rate regime did make Ethiopian goods more competitive on the global stage, we must consider how long this boost can last. History shows that currency devaluation (or rapid depreciation) often provides a short-term lift to exports, but the long-term picture is far more nuanced. Ethiopia's reliance on a narrow range of primary commodities, coupled with challenges like limited production capacity and fierce international competition, can cap the sustainable benefits of a weaker currency. Furthermore, the persistent threat of high inflation could easily erode any real gains from depreciation, making exports more expensive over time.
Looking ahead, it's crucial for Ethiopian policymakers to meticulously analyze these intricate global and domestic factors. While celebrating the recent successes, it's vital to develop strategies that aren't solely dependent on favorable international commodity prices or currency depreciation. Diversifying the export base, enhancing productivity, improving infrastructure, and tackling bureaucratic hurdles are essential for building a resilient and truly competitive export sector. These foundational changes will be key to ensuring that Ethiopia's economic progress is not just a temporary windfall but a trajectory toward sustainable growth.
In the end, the success of Ethiopia's macroeconomic reform program should not be judged solely by short-term metrics or one-off windfalls. Rather, it should be measured by the country's ability to build resilience, adapt to shifting global realities, and grow in a way that is inclusive, equitable, and sustainable. AS
Editor's Note: Samson Hailu, the author of this commentary, holds a Master of Business Administration with a specialization in finance and a Bachelor of Arts in economics. He can be contacted at [email protected]
