NBE affirms commitment to sustainable, inclusive economic growth

Addis Ababa, November 5, 2024 (FBC) – In a recent interview with Central Banking, Mamo Mihretu, Governor of the National Bank of Ethiopia (NBE), addressed critical issues surrounding the country’s ongoing central banking reforms and economic issues.

When asked about Ethiopia’s debt repayment situation, Mamo clarified that the country’s missed Eurobond payment was a strategic move linked to negotiations with bilateral creditors, rather than a conventional default.

The government is currently seeking modest debt reductions in discussions with international creditors.

The governor explained that the delay in restructuring Ethiopia’s debt, despite an application to the G20 common framework, is largely due to the lack of an International Monetary Fund (IMF) program, which only commenced in July 2024.

The country’s external debt is primarily owed to multilateral and Chinese creditors with hopes for resolutions expected by early 2025.

Discussing the importance of the IMF’s extended credit facility (ECF), Mamo described it as essential for both financing and technical support for Ethiopia’s economic reforms. The NBE had already initiated many required policy adjustments prior to the ECF’s implementation, enabling the central bank to modernize its monetary policy framework under IMF guidance.

A significant change introduced during this period is the shift to an inflation-targeting framework. As of August 2024, the central bank established a policy interest rate of 15%, aiming to control inflation effectively.

Regarding recent currency devaluation, Mamo indicated that the move was expected to align with market forces, establishing a largely market-determined foreign exchange environment, with provisions for intervention if needed to address excessive fluctuations. Preliminary results following the devaluation show a rise in exports and a reduction in imports, suggesting a narrowing trade deficit, though Mihretu cautioned that it is still too early for conclusive assessments.

In response to potential inflation resulting from devaluation, the governor assured that essential goods will be subsidized to mitigate price increases, while the NBE will maintain a tight monetary policy to control inflation.

Mamo also unveiled the NBE’s ambitious digitalization strategy, focused on enhancing digital payments and financial inclusion in collaboration with international partners. As part of its commitment to sustainable financing, the NBE confirmed the cessation of direct monetary financing to the government as of the current fiscal year, with only a temporary cash flow facility remaining.

To bolster its data capabilities and promote transparency, the NBE is prioritizing enhanced data management practices and aims to share more information with the public, supporting informed decision-making.

Looking ahead, the NBE Governor emphasized the NBE’s goal of becoming a more independent and effective institution. With a comprehensive reform plan in place, the bank aims to foster sustainable and inclusive economic growth, setting a positive example for other nations across Africa.