NBE Governor says Ethiopia’s economic reform built on preparation, coordination, and adaptability

Addis Ababa, April 25, 2025 (FMC) – Governor of the National Bank of Ethiopia (NBE), Mamo Mihretu, says the country’s bold economic reform is not simply about monetary or foreign exchange policy—it is a coordinated, whole-of-government effort that began with deep preparation and is being implemented with strategic sequencing and constant adaptation.

“What we did in Ethiopia is not just shift toward a market-based exchange rate regime. Most people assume that’s the reform. But in our view, that’s not the reform,” Mr. Mamo stated. “What happened in Ethiopia is a full-scale liberalization of the FX regime.”

At a “Governor’s Talk” conversation held on the sidelines of the 2025 IMF-World Bank Spring Meetings in Washington DC, he explained that for the first time in 50 years, Ethiopia has moved from a tightly controlled foreign exchange system to a fully liberalized one—one that goes far beyond just changing the exchange rate mechanism. “The FX regime was governed by almost 87 directives issued over the years. All of this was streamlined and rationalized. We now have one single directive regulating the FX regime in Ethiopia—accessible, easy to understand for anyone operating in the economy.”

Key reforms included removing surrender requirements, easing access to external credit, licensing new FX market operators such as bureaus, and opening Ethiopia’s capital market to foreign participants. Mr. Mamo said the aim is clear: “We want to improve access to foreign currency for the private sector. If they don’t have the foreign currency, they cannot produce and operate at capacity. The point of the FX reform is to increase inflow and make it easy for the private sector to access foreign currencies.”

He added: “We paid a price to implement this reform, and we want to make sure it delivers.”

The early results have been stronger than expected. “The FX supply response has dramatically increased. Exports this year in Ethiopia will increase by a minimum of 100%—they will literally double. Remittances will increase by at least 25%.”

Much of that increase comes from a shift from informal to formal remittance channels. “We see significant increase in inflow in the banking sector now.”

On reserves, he pointed out: “After the reform, our reserve level increased threefold. Reserves at the banking system increased twofold.”

What matters most, however, is that the reform is working for the real economy: “The most satisfying outcome is the fact that access for the private sector has increased. This is the whole point.”

Mr. Mamo also stressed that the National Bank is committed to staying the course. “We are not in panic. We are constantly vigilant. We’re closely watching how the market is performing. There is more work to be done to deepen the market, to encourage competition among banks, but we’ll stay the course.”

He said trust and transparency are key to the reform process. “You don’t build trust by rhetoric. You build it by doing what you said you would do. That is how you buy credibility. We want to approach it with integrity, closely watch market dynamics, and do what we say we would do.”

Asked what surprised him most in the course of reform implementation, Mr. Mamo emphasized preparation and coordination. “We took a significant amount of time preparing internally, doing analysis, consulting among different government agencies. For outsiders, this could be frustrating. But for us, the amount of time we invested was important.”

He added: “There is meaningful coordination, for example, between the fiscal and the monetary authority. The reform that we are undertaking in Ethiopia is not reformed by the central bank. It has a whole-of-government approach to it.”

He also highlighted the importance of sequencing. “Before the exchange rate reform on July 29, that was preceded by tight monetary and fiscal policy measures in July 2023. We started the reform a year before the announced exchange rate reform. Even after the reform, some of the subsidies were not eliminated immediately. We want to sequence it in a proper way.”

He emphasized adaptability as a core principle. “I think it’s important to sit with ambiguity, to sit with uncertainty. The important skill is really to do diagnosis regularly and to take corrective measures and learn from it. If it doesn’t work out, change your approach.”

Turning to broader financial sector reforms, Mr. Mamo outlined three major areas. “The first important reform is the revision of the Central Bank Act itself. This is something that we’ve done for the first time after two decades. There, we made price stability to be the core objective.”

Second, the financial sector has been opened to foreign competition through new banking proclamations. “We also took measures to ensure the stability of the financial sector by capitalizing the most important, the systemically important bank in Ethiopia, the Commercial Bank of Ethiopia.”

He added that the country is working on financial deepening, financial inclusion, and digitization. “All the reform measures that we took in Ethiopia are coherent and coordinated. It’s not just a monetary policy reform. It’s also an FX reform, a financial sector reform. It’s also an institutional reform. And there is also similar work that’s happening at the Treasury in terms of fiscal consolidation.”

Highlighting NBE’s move in reducing inflation, Mamo stated the primary goal of the central bank is to reduce inflation in Ethiopia’s case, reminding that for the last three consecutive years, inflation was about 30%. “Owing to the tight monetary policy that we are implementing in Ethiopia, we managed to reduce inflation from 30% to 13% in March. And our hope is in the next fiscal year, inflation will reach 10%. And if we achieve that, this will be the first in 10 years in Ethiopia.

Asked about what comes next, Mr. Mamo said: “First thing is we have to deepen the current reform initiatives. There is more work to be done on the monetary policy front by moving, shifting toward this full-fledged interest-based monetary policy.”

He concluded: “We want to work in terms of deepening the FX market, and most importantly, we have to conclusively address the source of macro instability and invest in a strong macro foundation. That would be an important precondition for growth in Ethiopia. Ethiopia is the third largest economy in the African continent. With this strong macro investment, we think we can sustain productivity. We can sustain growth. We can attract more private capital into the country in the years ahead.”