Ethiopia’s Central Bank: Leading Transformative Reform
IMF News, May 28, 2025
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- Published: May 28, 2025
Overview
- Ethiopia has embarked on a comprehensive transformation of its monetary and exchange rate regimes to address macroeconomic imbalances while fostering sustainable growth.
- The reform program began under the Homegrown Economic Reform Program launched in 2019.
- The IMF is supporting Ethiopia’s reform efforts through a four-year $3.4 billion Extended Credit Facility Arrangement.
- Reforms target acute foreign exchange shortages, high inflation, budgetary constraints, financial vulnerabilities in state-owned enterprises and state-owned banks, and a sovereign debt restructuring, while mitigating social impacts and managing humanitarian pressures.
Monetary policy reforms
- Revision of the Central Bank Act to prioritize price stability.
- Introduction of a monetary policy rate.
- Implementation of open market operations for liquidity management with banks.
- Establishment of a Monetary Policy Committee to advise on monetary policy decisions based on comprehensive assessments of economic conditions.
- Interest rates are now positive in real terms.
- Inflation has declined from 30 percent to 13 percent.
Foreign exchange reforms
- Move to a market-based foreign exchange regime for the first time in five decades.
- Comprehensive liberalization of foreign exchange transactions.
- Elimination of the requirement to surrender export earnings to the National Bank of Ethiopia (NBE).
- Early results reported:
- Exports are expected to double.
- Foreign reserves have already been tripled.
- Foreign exchange availability has increased.
Institutional, legal, and organizational changes
- NBE is updating its legal framework and internal organization to support the new policy stance.
- Emphasis on communication: transparent communication, active market monitoring, and open channels of dialogue with stakeholders to build credibility and trust.
Macroeconomic context and objectives
- Background: After two decades of sustained economic growth primarily driven by public investment, Ethiopia faced unsustainable macroeconomic imbalances due to the state’s reliance on external creditors, a large public bank, and the NBE.
- Primary objective of the reform agenda: to address fundamentally, boldly, and conclusively the sources of macroeconomic instability and create a much more open, investment-friendly, and private-sector-friendly environment to support job creation, increased income, and improved livelihoods.
Outcomes and expectations
- Addressing foreign exchange shortages and inflation to create conditions for high, sustainable growth.
- Increased foreign exchange availability and strengthened reserves.
- Anticipated increase in exports (expected to double).
- Progress toward a fully-fledged interest-rate based monetary policy and a deepened foreign exchange market.
Lessons learned and next steps
- Lessons emphasized by NBE leadership:
- Preparation and coordination among government agencies are crucial.
- Sequencing of reforms matters to maintain stability and manage public expectations.
- Adapting to evolving economic conditions is vital for success.
- Next steps highlighted:
- Deepen current monetary policy reforms as Ethiopia moves to a fully-fledged interest-rate based monetary policy.
- Deepen the foreign exchange market.
- Decisively address macroeconomic instability to create a strong foundation for sustainable growth.
Source: Edited transcript of conversation between Mamo Mihretu, Governor of the National Bank of Ethiopia, and Abebe Aemro Selassie, Director of the IMF’s African Department, May 28, 2025.