Ethiopia is implementing significant changes to its monetary and exchange rate systems, aiming to address macroeconomic imbalances and promote sustainable growth. The country has liberalized its foreign exchange regime, adopted a flexible exchange rate, moved to an interest rate-based monetary policy, and ceased central bank financing of the government. These efforts are part of a broader reform initiative by the National Bank of Ethiopia (NBE), which includes updating its legal framework and internal organization.
The reforms are designed to tackle foreign exchange shortages and inflation while setting the stage for high growth. Additionally, the Ethiopian government is addressing budgetary constraints, financial vulnerabilities in state-owned enterprises and banks, and sovereign debt restructuring. The International Monetary Fund (IMF) supports these reforms with a four-year $3.4 billion Extended Credit Facility Arrangement.
During the 2025 IMF-World Bank Spring Meetings, Mamo Mihretu, Governor of the NBE, discussed these reforms with Abebe Aemro Selassie, Director of the IMF’s African Department. Mihretu explained that after two decades of economic growth driven by public investment, Ethiopia faced unsustainable macroeconomic imbalances due to reliance on external creditors and large public banks.
Mihretu stated that Ethiopia's Homegrown Economic Reform Program was launched in 2019 to address macroeconomic instability fundamentally and create an open environment for investment and private sector growth. Key reforms include revising the Central Bank Act to prioritize price stability, introducing a monetary policy rate, implementing open market operations for liquidity management with banks, establishing a Monetary Policy Committee, and achieving positive real interest rates.
On foreign exchange reforms, Mihretu noted that Ethiopia now has a market-based regime for the first time in five decades. The country has liberalized foreign exchange transactions and eliminated export earnings surrender requirements to the NBE. Early results show promising outcomes with expected export doubling and increased foreign reserves.
Mihretu emphasized transparent communication as crucial for building credibility and trust during reform implementation. He highlighted lessons learned from preparation and coordination among government agencies, sequencing reforms to maintain stability, managing public expectations, and adapting to changing economic conditions.
Looking ahead, Mihretu outlined plans to deepen monetary policy reforms towards a fully-fledged interest-rate based system while strengthening the foreign exchange market. Addressing macroeconomic instability remains central to creating a foundation for sustainable growth.