With the recent approval of a bill permitting foreign bank ownership, partnerships, and branch openings in Ethiopia, The east African country is attracting interest from lenders across Kenya, Morocco, and the UAE.
“As one of Africa’s largest and most untapped banking markets, Ethiopia’s decision promises to reshape the landscape of its financial sector, infusing capital, innovation, and competition into 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 supported by a $3.4 billion International Monetary Fund (IMF) bailout, approved in July.
This financial support came on the heels of 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 the currency devaluation has been more manageable than anticipated.
The shift from a quantity-based to an interest rate-based monetary policy has allowed Ethiopia’s National Bank (NBE) to control inflation effectively. Currently set at 15 percent, interest rates are expected to stabilize inflation and provide a steady foundation for Ethiopia’s economic transformation.
Mihretu has emphasized the importance of maintaining a tight monetary policy to protect the birr’s value and contain inflation, which has gradually dropped from 33.9 percent in 2023 to 17.5 percent as of September 2024.
The governor said the NBE’s foreign exchange reserves have surged by 152 percent, and remittances through the Commercial Bank of Ethiopia have increased by 60 percent year-on-year. These developments point to a healthier financial system that is better equipped to support Ethiopia’s ambitious economic goals.
MG/abj/APA
