Ethiopia is set to enhance its domestic funding capabilities through debt financing via bonds in the Ethiopian securities market. This initiative is part of a comprehensive reform program aimed at restoring macroeconomic stability by modernizing monetary and financial systems and strengthening fiscal capacity.
The National Bank of Ethiopia (NBE) has highlighted that this new approach to capital markets will create significant opportunities for the government. Mamo Mihretu, Governor of the NBE, stated, “Access to debt financing through bonds in the Ethiopian securities market will give the government a new way to boost domestic finance.” He emphasized that avoiding central bank financing of the deficit is a key macroeconomic objective this year, which will help reduce inflation while enabling the government to secure funding from capital markets.
Capital markets are viewed as a reliable source of domestic financing, essential for meeting both long-term public investment needs and short-term deficit financing requirements. The recent Capital Market Summit, organized by the Ethiopian Capital Market Authority (ECMA) in collaboration with the African Development Bank and the International Financial Corporation, took place from November 13 to 15, 2024. The inaugural conference, themed “Paving the Way for Sustainable Development,” aims to accelerate market development and open significant investment opportunities in the region.
The summit was attended by senior government officials, leaders from Ethiopia’s financial sector, and representatives from African and international financial institutions. During the conference, Governor Mamo Mihretu announced the launch of a money market through an online platform managed by the Ethiopian Securities Exchange (ESX). This new platform will enable banks to lend to and borrow from one another using a modern electronic framework.
Mamo reported that this scheme had already been piloted successfully, resulting in over 5 billion Birr in overnight and 7-day maturity transactions among banks within just three days.
Hana Tehelku, Director General of ECMA, addressed previous challenges in issuing and trading financial documents due to a lack of legal frameworks and regulatory bodies. To tackle these issues, new guidelines have been developed based on the Capital Market directive, establishing a legal framework for financial documents available for sale in Ethiopia.
Under these new guidelines, all documents must be submitted to and approved by ECMA before they can be marketed. This includes detailed procedures for registration and stipulations that advertisements related to financial documents can only be broadcast once their content has been reviewed and approved by the authority.
The marketing guide for public offerings outlines essential elements such as customer interest statements that must be made available to investors, presentation processes, necessary licenses, and conditions under which sales and allocations may occur.
As Ethiopia moves forward with its capital market initiatives, stakeholders are optimistic about the potential for increased domestic funding through bonds and improved access to financial resources for public investment. This strategic shift aims not only to stabilize the economy but also to foster sustainable development across various sectors in Ethiopia.
