Ethiopia’s Macro Reforms at One: NBE Highlights Progress and Path Ahead











A year after launching a sweeping package of macroeconomic reforms, the National Bank of Ethiopia (NBE) is touting major strides in modernizing Ethiopia’s monetary, exchange rate, and financial systems. The reforms, which began on July 29, 2024, under the Home-Grown Economic Reform agenda, mark a decisive shift toward market-oriented policy frameworks aimed at stabilizing the economy, controlling inflation, and restoring external balance.

In a press release issued on Monday, the central bank outlined the major gains and continuing challenges of the reform agenda, describing the past year as a “bold commitment” to a stable and inclusive economic foundation. Key milestones include tighter inflation targeting, liberalized exchange rate regimes, a revamped financial sector, and the opening of the banking sector to foreign competition.

Monetary Policy: From Reactive to Proactive

At the heart of the reform is the modernization of Ethiopia’s monetary policy framework. The NBE has prioritized inflation control as its principal mandate, and for the first time, a Monetary Policy Committee (MPC) has been established to forecast macroeconomic conditions, advise on policy responses, and issue quarterly statements.

A new benchmark interest rate—the National Bank Rate (NBR)—was introduced to guide liquidity management, supported by a suite of new instruments including open market operations, standing lending facilities, and an emergency liquidity assistance mechanism for stressed banks. The central bank also lifted the requirement for banks to purchase Treasury bonds, freeing up private lending.

Importantly, NBE created an interbank money market, allowing banks to borrow and lend to each other without central bank intervention, reflecting a shift toward indirect policy tools.

Exchange Rate Liberalization: FX Market Opens Up

The reforms have also drastically altered Ethiopia’s foreign exchange landscape. The exchange rate is now largely market-determined, replacing the tightly controlled regime of the past.

FX surrender rules were relaxed or abolished, and exporters were granted greater flexibility to retain their foreign currency earnings. The private sector has benefited from increased foreign currency availability, with daily average FX sales to businesses doubling to $25 million.

As a result, foreign exchange inflows surged by 33% in one year to $32 billion. This includes $8.3 billion from goods exports, $8.5 billion in services, $7.1 billion from remittances, and nearly $6 billion from grants and new loans. This increased inflow enabled a three-fold rise in FX reserves at NBE and strengthened the balance of payments.

Thanks to the FX liberalization, new foreign credit worth $445 million was secured by the private sector—more than twice the amount from a year prior. Nearly ten new foreign exchange bureaus have also been established to meet demand.

Financial Sector Transformation: Opening the Gates

The NBE highlighted several transformative steps in financial sector regulation and supervision:

A new Banking Sector Proclamation established NBE’s autonomy and introduced new norms for transparency and governance.

Direct credit to government was eliminated for the first time in 12 years.

The banking sector was opened to foreign banks—a long-awaited reform.

The largest state-owned banks were recapitalized and modernized.

New directives improved credit assessment, risk management, and borrower exposure limits.

Digital finance initiatives expanded rapidly, including credit scoring, transaction accounts, and SME credit platforms.

These changes helped financial sector deposits grow by 41% to 3.5 trillion birr, while private sector credit expanded by 22% to 3.74 trillion birr. Despite rapid growth, key risk indicators like the non-performing loan (NPL) ratio (3.9%) and liquidity ratio (24.9%) remain within safe thresholds.

Inflation Tamed—But Not Conquered

One of the most tangible outcomes has been a visible decline in inflation. The headline rate has dropped to 13.9% in June 2025 from 20% a year earlier. The NBE attributes this to tighter monetary policy, positive real interest rates, and its withdrawal from direct credit to government.

Despite these gains, NBE acknowledged that challenges remain, noting that the reform process is ongoing. Experts warn that external shocks, domestic supply disruptions, and political instability could still undermine progress.

What Lies Ahead

NBE Governor and senior officials emphasized that the reforms are not an endpoint but a foundation. In the coming year, the bank plans to strengthen enforcement of prudential regulations, expand FX market access, deepen capital markets, and continue the push for digitization and financial inclusion.

“The journey is far from over,” the NBE noted. “But the foundation laid over the past 12 months offers a clear path forward for a more resilient, inclusive, and competitive economy.”

As Ethiopia positions itself for growth, investors and citizens alike will be watching closely to see whether these hard-won gains can be sustained.