Initiative to liberalize the banking sector in Ethiopia, with the recent approval of a bill allowing foreign bank ownership, partnerships and branch openings. Through this, the East African country is attracting the interest of bankers from Kenya, Morocco and the United Arab Emirates.
“As one of Africa’s largest and least exploited banking markets, Ethiopia’s move promises to reshape the landscape of its financial sector, injecting capital, innovation and competition in the economy “, Mamo Meheretu, governor of the National Bank of Ethiopia, told local media on Monday.
The liberalization of Ethiopia’s banking sector aligns with broader economic reforms backed by a $3.4 billion bailout from the International Monetary Fund (IMF), approved in July.
The financial support follows Ethiopia’s efforts to float its currency, the Ethiopian birr, which has since lost about a third of its value against the dollar. By adopting a more flexible exchange rate system, Ethiopia aims to address chronic foreign exchange shortages and attract foreign investment.
Despite concerns about inflation, the impact of currency devaluation has been more manageable than expected.
The shift from quantity-based monetary policy to interest rate-based monetary policy has enabled the National Bank of Ethiopia (NBE) to effectively control inflation. Currently set at 15%, interest rates are expected to stabilize inflation and provide a solid foundation for economic transformation
of Ethiopia.
Mihretu stressed the importance of maintaining a tight monetary policy to protect the value of the birr and contain inflation, which gradually fell from 33.9% in 2023 to 17.5% in September 2024.
The governor said the NBE’s foreign exchange reserves jumped by 152% and remittances through the Commercial Bank of Ethiopia increased by 60% year-on-year. These developments demonstrate a healthier financial system that is better equipped to support Ethiopia’s ambitious economic goals.
MG/abj/fss/ac/Sf/APA
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