Addis Abeba — Former World Bank President David Malpass has said that Ethiopia's currency devaluations and exchange-rate reforms have significantly worsened poverty, saying people paid in birr "saw their incomes decimated" while a narrow group benefited from privileged access to foreign exchange and local-currency loans.
Discover morecurrencyPublic FinanceBanks Using Ethiopia as one of his principal case studies in his policy research paper presented at Stanley Fischer Memorial Lecture: Public Debt and Central Banks, Policy Research Working Paper Malpass described the country as possessing "huge growth potential," citing its agricultural land, natural resources, water, favorable climate and "raw human talent." He noted that the World Bank has financed about 200 projects in Ethiopia, with 43 still ongoing, but said the country's per capita income remains around USD 1,100, making it "one of the world's poorest countries."
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Resources flow from the poor, whose income and any financial assets are devalued, to those who held foreign currency or had been able to arrange local currency loansDictionaries & Encyclopedias
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David said that when he visited Ethiopia in 2019 to meet Prime Minister Abiy Ahmed, the birr traded at roughly 28 to the U.S. dollar under a system of multiple exchange rates and administratively allocated foreign currency.
Discover moreMLM & Business OpportunitiespovertyTax Preparation & Planning That system enabled selected businesses and groups to obtain foreign currency at preferential rates, creating powerful incentives for repeated currency devaluations. "The incentive to devalue was intense because it was so profitable," he said.
Banking Explaining the impact in simpler terms, Malpass argued that every time the birr lost value, ordinary Ethiopians bore the cost because their wages and savings purchased less, while those holding foreign currency or benefiting from preferential borrowing gained.
"Resources flow from the poor, whose income and any financial assets are devalued, to those who held foreign currency or had been able to arrange local currency loans," he said.
Geographic Reference Discover morefinancedCurrencies & Foreign ExchangebankfinancingfinancialbanksCompensation & BenefitsAfricans & DiasporaMobile Apps & Add-OnsMagazines His assessment comes as inflationary pressures continue to weigh on Ethiopian households. Annual inflation accelerated to 13.4 percent, the sharpest increase among ten major African economies during the first half of 2026. The rise was driven largely by accelerating food prices alongside the government's macroeconomic reform program, including the transition to a market-determined exchange rate.
Earlier Addis Standard reporting also highlighted what economists have described as an "illusion of disinflation." Although headline inflation had slowed from previous peaks, economists cautioned that a lower inflation rate does not mean prices are falling. Instead, prices continue to rise from an already elevated base after years of cumulative increases that have steadily eroded purchasing power, forcing many households to cut consumption rather than savings.
Poverty & Hunger Malpass similarly argued that repeated devaluations have diminished both household incomes and the value of international development financing.
Using a World Bank loan as an example, he said a USD 100 million project initially expected to finance 2.8 billion birr worth of development ultimately delivered far less purchasing power after the currency depreciated.
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Winners are those who get local currency loans before devaluations or a privileged allocation of foreign exchange... Losers are people paid in local currency, the development assistance programs disbursed in local currency, and the people being impoverishedCompensation & Benefits
"The profit from the devaluation accrued to the central bank and a small group of people favored by government officials while the cost was borne through the inflation tax on the poor," he said, adding that "people earning wages in birr lost ground."
The former World Bank president also disclosed that he and IMF Managing Director Kristalina Georgieva unsuccessfully tried to persuade Prime Minister Abiy Ahmed in 2019 to abandon those exchange-rate practices.
Geographic Reference "Kristalina and I worked hard in 2019 to convince Prime Minister Abiy to end those central banking practices. We were unsuccessful and the devaluations have proceeded inexorably," he said.
Turning to Ethiopia's macroeconomic reforms launched in July 2024, Malpass criticized the transition to what the IMF describes as a "market-determined exchange rate."
Following the launch of its macroeconomic reform program in 2024, the government revised the Value Added Tax (VAT) framework, expanded the scope of excise taxes, and introduced additional revenue measures. The reforms brought electricity, water, and other utility services under the 15 percent VAT regime.
Alongside these tax changes, the government began a gradual removal of fuel subsidies and implemented successive increases in fuel and electricity tariffs. The measures have contributed to rising household costs, affecting transportation, utility bills, and other essential expenditures.
"The birr lost half its value, so people earning wages in birr saw their incomes decimated. There was no real effort at subsequent stabilization, so the devaluation continued and poverty became even worse," he said.
Local News The remarks mirror concerns previously documented by Addis Standard over the rising cost of living following the currency reforms. Earlier reporting found that the depreciation of the birr from around 56 birr to more than 150 birr per U.S. dollar in the official market substantially increased the cost of imported goods. At the same time, the gradual removal of fuel subsidies, rising global energy prices linked to tensions in the Middle East, and new fiscal measures, including a 15 percent VAT on electricity and water, added to household expenses. While the prices of housing, transport, food and healthcare continued to climb, wages for many public-sector and fixed-income workers remained largely stagnant, further reducing purchasing power.
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Malpass cited World Bank estimates projecting that 43 percent of Ethiopians would be living below the poverty line by 2025, up from 33 percent in 2016, while multidimensional poverty would affect 72 percent of the population.
He also said that by 2025 the birr had become "the world's third weakest currency" and claimed that periodic foreign-exchange auctions continued to favor a limited number of banks.
"The February 2026 central bank intervention allocated USD 500 million to friendly banks. In May it was another bundle," he alleged.
Banking Malpass argued that these incentives encourage continued currency devaluations.
"Winners are those who get local currency loans before devaluations or a privileged allocation of foreign exchange... Losers are people paid in local currency, the development assistance programs disbursed in local currency, and the people being impoverished," he said.
He concluded by calling for what he described as "sound money," greater exchange-rate stability and lower transaction costs, arguing that stable currencies are essential for sustainable development.
"Development needs stable money, low transaction costs, and a currency system that delivers it," he said, adding that governments should be more transparent about what he described as the social costs of currency devaluations.
