Ethiopia sees surge in foreign exchange inflows following economic reforms

Addis Ababa, November 28, 2024 (FBC) – At a recent European Chamber in Ethiopia event, National Bank of Ethiopia Governor Mamo Mihretu announced significant foreign exchange (FX) reforms that have boosted the country’s FX reserves from $3.1 billion to $5.9 billion. The reforms come as part of efforts to modernize Ethiopia’s banking sector and improve inflation management.

Mamo highlighted the crucial role of European businesses in Ethiopia’s economy, noting their substantial contributions to job creation and tax revenues. The Governor outlined three key areas of reform: shifts to an interest-based monetary policy, strengthening the financial sector, and a transition to a market-determined exchange rate.

The reforms aim to enhance accessibility and encourage foreign competition within the banking sector. As a result, the parallel market premium for FX transactions has dropped significantly, and banks have seen a surge in FX transaction volumes. The current account balance has also shifted from deficit to surplus.

Despite ongoing challenges, including local currency liquidity, Mamo emphasized the importance of continued cooperation between the government and private sector to achieve price stability and economic growth. He responded to EuroCham members’ questions about the implications of the reforms for foreign direct investment and local businesses, assuring them of measures to protect low-income households and improve financial inclusion.

The event underscored the positive reception of the reforms by the FDI community, paving the way for ongoing collaboration between the National Bank and businesses.