At part of the keynote speech at the start of the @EthiopiaFinance, the Governor of the NBE Mamo Mihretu gave a wide-ranging overview of Ethiopia’s recent macroeconomic reforms and the transformative initiatives being put in place by the NBE. The Governor noted that monetary, exchange rate, and financial sector policies are all in the midst of major improvements. The ultimate objective: to make Ethiopia’s financial sector more competitive and market-based, private sector oriented, open to foreign investors, digitally driven, and increasingly reaching the under-served.

The Governor’s presentation highlighted major reforms in all core areas of the bank’s work. 

• On monetary policy, a number of ‘first-of-its-kind reforms’ included: setting price stability as the central bank’s primary objective, establishing a policy rate, introducing a monetary policy committee, and starting brand new markets involving NBE Open Market Operations and an inter-bank money market.
• With respect to exchange rate policies, besides a shift to a market determination of the rate, reforms also liberalized many aspects of the fx regime by removing surrender requirements, giving exporters more favorable fx retention privileges, introducing fx bureaus, easing foreign borrowing requirements, and enabling foreign portfolio inflows into the domestic capital market.
• Finally, in order to meet global standards, the financial sector has seen reforms that establish a relatively autonomous central bank, modernize banking practices & regulations, allow for the entry of foreign banks, recapitalize the sector’s largest bank, and deepens financial inclusion and digitization initiatives. 

The Governor provided a snapshot of some of the early results of the macro reforms:

Inflation has been cut sharply from near 30% to 13.6% and is now at a five-year low.

A major past driver of inflation (in the form of monetary financing) has been eliminated this fiscal year

• Interest rates have risen to positive levels in real terms for T-Bills and other markets
• The inter-bank money market has become very active with cumulative transactions exceeding Birr 628bn.
• An impressive FX supply response is being registered, with 108% growth in goods exports, rising services and remittances, increased capital inflows, and a 200% increase in NBE’s fx reserves. 

Looking ahead, the Governor highlighted that the NBE’s priorities will be to continue fine-tuning recent reforms so they are well-entrenched and also encouraging the sector as a whole to move towards the ‘frontiers of finance’—most notably, in areas such as digitization & payments, opening up & product innovation, remittances, and financial inclusion.

The Governor ended his speech by noting that “the future of finance is bright in Ethiopia” and with the Government having played its part, the financial sector must equally align itself with the emerging opportunities and make their mark in this historic transformation. He added that: “With strategic vision, bold actions, and patient determination… Ethiopia will be a beacon of light in the African continent.”