IMF Says Ethiopia’s Central Bank Leading Transformative Reform

Addis Ababa: Ethiopia has taken historic steps to address macroeconomic imbalances while fostering sustainable growth, according to the IMF.

Over the past year, Ethiopia-Africa’s second most populous nation, has embarked on a comprehensive transformation of its monetary and exchange rate regimes. Recently, 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 the government. In parallel, the National Bank of Ethiopia (NBE) is updating its legal framework and internal organization.

According to Ethiopian News Agency, 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 USD Extended Credit Facility Arrangement. During the 2025 IMF-World Bank Spring Meetings, Mamo Mihretu, Governor of the National Bank of Ethiopia (NBE) discussed these key reforms with Abebe Aemro Selassie, Director of the IMF’s African Department.

In their conversation, Mihretu emphasized the need for these reforms, highlighting the unsustainable macroeconomic imbalances that Ethiopia faced after two decades of growth driven by public investment. The state’s reliance on external creditors and the NBE led to challenges such as foreign exchange shortages, limited credit access for the private sector, high inflation, and financial stability risks.

Mihretu explained that the Homegrown Economic Reform Program launched in 2019 aims to address the sources of macroeconomic instability fundamentally and create an open, investment-friendly environment. This is pivotal for job creation and improving livelihoods.

Key reforms in monetary policy include revising the Central Bank Act to prioritize price stability and introducing a monetary policy rate. Ethiopia has moved to a market-based foreign exchange regime, comprehensively liberalizing foreign exchange transactions. Early results show promise, with expectations of doubling exports and increased foreign reserves.

Mihretu stressed the importance of transparent communication in building credibility and trust, and outlined key lessons from implementing these reforms, such as the need for preparation, coordination, and adaptability to evolving economic conditions.

Looking forward, Ethiopia aims to deepen monetary policy reforms, enhance the foreign exchange market, and address macroeconomic instability to lay a strong foundation for sustainable growth.