Ethiopia’s recent decision to float its currency has sent shockwaves through the economy, underscoring the complexities of such a policy shift. While intended to foster a market-oriented system, the move has precipitated rapid currency depreciation, leading to heightened inflation and economic uncertainty.

The immediate impact on businesses has been profound. Exporters, once basking in the glow of a depreciated currency, now confront a myriad of challenges. Input costs have surged. Moreover, the instability of the exchange rate has made planning a daunting task.



On July 9, 2024, the National Bank of Ethiopia (NBE) unveiled a transformative monetary policy framework, marking a pivotal shift in the nation’s economic management and strategic financial planning. This framework aims to modernize Ethiopia’s monetary policy, enhance price stability, and align with international central banking best practices.

The cornerstone of this new framework is the transition to an interest-rate-based regime. The NBE will use the National Bank Rate (NBR), initially set at 15%, as the primary tool to signal its policy stance and influence broader monetary and credit conditions. This shift enhances transparency and predictability in monetary policy, aligning Ethiopia more closely with modern central banking practices.



Singapore’s Growth Model Lessons for Ethiopia

Ethiopia’s recent delegation to Singapore has ignited national discussions about the potential for our nation to replicate the Southeast Asian nation’s economic success. While inspiration is crucial, genuine development hinges on a fundamental principle: robust national unity. Here’s how Singapore’s journey offers valuable lessons for Ethiopia’s industrialization and stability, but national unity remains the cornerstone.



The recent findings of the National Bank of Ethiopia (NBE) Financial Stability Report have brought to light a significant trend: the ten largest borrowers hold a substantial portion, 23.5%, of the banking industry’s total loans and advances. This concentration of credit, while potentially beneficial, also poses substantial risks to the stability and health of Ethiopia’s financial system.



The Ethiopian Journey Towards a Truly Inclusive Economy

Over the past few decades, Ethiopia has embarked on a commendable journey towards creating a more inclusive economy. One noteworthy policy initiative has been the introduction of interest-free banking, initially offered through windows within conventional banks and later evolving into full-fledged institutions in 2020. This move has had a significant impact on the vast unbanked Muslim population in Ethiopia, fostering financial inclusion and empowering citizens who were previously excluded from the formal financial system. The impact extends far beyond the economic sphere, playing a crucial role in social empowerment and paving the way for a more equitable society.



The 2018 political shift in Ethiopia initially sparked optimism for the advancement of women’s rights. Under Prime Minister Abiy Ahmed, the Ethiopian government implemented reforms that garnered global attention. Women’s representation in leadership saw a dramatic increase, with half of the ministerial positions being filled by women and women taking the helm of the presidency, the Supreme Court, and the national election board. These reforms extended to regional and local levels, fostering hope of a genuinely inclusive future for Ethiopian women.



Ethiopia’s landlocked status has long constrained its economic growth and regional influence. While direct access to the sea offers undeniable benefits, achieving it remains a complex geopolitical puzzle. Direct access to the seaport brings enormous economic benefits for Ethiopia. It strengthens a nation’s regional and international standing, granting it a voice in maritime affairs and potentially boosting cooperation with other coastal countries and superpowers.



Will it Rain Relief or Ruin?

Ethiopia’s debt is undoubtedly mounting. Although the debt to GDP ratio has shown some signs of decline, the debt in actual figure is increasing.

The IMF and other economic institutions project that Ethiopia’s debt-to-GDP ratio will increase in the near term, potentially reaching 50Pct by 2024. Some analysts believe Ethiopia can manage its debt burden sustainably, while others express concerns about the potential debt crisis, which is already looming as the country missed a USD33 million Eurobond coupon payment on December 5. The default on the Eurobond coupon marks a challenging economic phase for Ethiopia. This development comes amidst internal conflicts, high public debt, and ongoing discussions with the IMF for a potential financial bailout and debt restructuring with G-20 countries.




Ethiopian Business Review | EBR is a first-class and high-quality monthly business magazine offering enlightenment to readers and a platform for partners.



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