The birr will continue to be managed closely by the central bank, which maintains a policy of gradual depreciation interspersed with sharper adjustments. The IMF classifies this as a crawl-like arrangement and supported a 16.7% devaluation in September 2010, which brought the birr in line with fundamentals. However, we expect that the government will continue to wield the exchange rate as a policy tool in 2011-12, devaluing the currency to improve export competitiveness. Foreign-exchange reserves have recovered since reaching dangerously low levels during the global financial crisis and will offer some support to the birr, but reserves will remain short of the recommended minimum of three months' import cover. The pattern of gradual depreciation and intermittent larger adjustments is likely to continue. We forecast that the currency will weaken from an average of Birr14.40:US$1 in 2010 to Birr17.90:US$1 in 2011 and Birr19.60:US$1 in 2012.