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ETHIOPIA Ethiopia’s Central Bank: Leading Transformative Reform

(Credit: IMF Photo/Sarah Silbiger) Over the past year, Ethiopia—Africa’s second most populous country—has embarked on a comprehensive transformation of its monetary and exchange rate regimes. After decades of tight control, the country has liberalized the foreign exchange regime, adopted a more flexible exchange rate, moved to an interest rate-based monetary policy, and ended central bank financing of government. In parallel, the National Bank of Ethiopia (NBE) is updating its legal framework and internal organization.     These reforms aim to address acute foreign exchange shortages and inflation, creating conditions for high, sustainable growth. The authorities are also tackling 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. The IMF is supporting Ethiopia’s reform efforts through a four-year $3.4 billion Extended Credit Facility Arrangement.   During the 2025 IMF-World Bank Spring Meetings, Mamo Mihretu, Governor of the National Bank of Ethiopia discussed these key reforms with Abebe Aemro Selassie, Director of the IMF’s African Department. The following is an edited transcript of the conversation, focusing on key highlights (view video).    Abebe Aemro Selassie: Ethiopia is undergoing significant reforms that are reshaping its economic landscape. Can you provide some context regarding the state of the economy before these reforms? Mamo Mihretu: After two decades of sustained economic growth, primarily driven by public investment, Ethiopia faced unsustainable macroeconomic imbalances. The state’s reliance on external creditors, the large public bank, and NBE led to foreign exchange shortages, limited access to credit for the private sector, high inflation, financial stability risks, and debt vulnerabilities. Abebe Aemro Selassie: What are the primary objectives of the reform agenda that Ethiopia has embarked upon? Mamo Mihretu: We launched our Homegrown Economic Reform Program in 2019. The objective of the reforms was to address fundamentally, boldly, and conclusively the sources of macroeconomic instability in Ethiopia and create a much more open, investment-friendly, and private-sector-friendly environment. These objectives are critical for our job creation agenda that will increase income and improve livelihoods. Abebe Aemro Selassie: Can you elaborate on some of the key reforms in Ethiopia's monetary policy? Mamo Mihretu: We have made historic changes, including the revision of the Central Bank Act to prioritize price stability. We introduced a monetary policy rate, implemented open market operations for liquidity management with banks, and established 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. Abebe Aemro Selassie: What about the reforms related to foreign exchange? What changes have been implemented? Mamo Mihretu: Ethiopia has a market-based foreign exchange regime for the first time in five decades. We comprehensively liberalized foreign exchange transactions and eliminated the requirement to surrender export earnings to the NBE. The early results have been promising; we expect exports to double and have already tripled our foreign reserves, while foreign exchange availability has also increased. Abebe Aemro Selassie: Communication appears to be a vital aspect of your reform strategy. Can you discuss its importance? Mamo Mihretu: Building credibility and trust is essential. We are investing in transparent communication and actively monitor market dynamics. By maintaining open channels of dialogue with stakeholders, we aim to foster a supportive environment for these reforms. Abebe Aemro Selassie: What lessons have emerged from your experience in implementing these reforms? Mamo Mihretu: Several key lessons stand out. First, preparation and coordination among government agencies are crucial. Second, the sequencing of reforms matters; it helps maintain stability and manage public expectations. Finally, adapting to evolving economic conditions is vital for the success of any reform effort. Abebe Aemro Selassie: What are the next steps for Ethiopia in terms of reform and economic development? Mamo Mihretu: We have to deepen the current monetary policy reforms as we move to a fully-fledged interest-rate based monetary policy. We are also working on deepening the foreign exchange market. Most importantly we are decisively addressing macroeconomic instability to create a strong foundation for sustainable growth.

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Peter Walker  Managing Editor | IMF Country Focus   pwalker@IMF.org

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