The Ethiopian government’s ambitious plan to finance its budget through the domestic debt market is currently facing significant challenges. Recent data shows a marked investor aversion to long-term securities and a considerable shortfall in meeting annual borrowing targets.
According to the Ministry of Finance’s Monthly Domestic Debt Bulletin for September 2025, the government is struggling to attract investment in its longer-term debt instruments, creating a substantial hurdle for its fiscal strategy.
The most pressing issue is the dramatic undersubscription of longer-term Treasury bills. In September, the 364-day bill was undersubscribed at only 36%, meaning nearly two-thirds of the government’s offering went unsold. In stark contrast, the 28-day bill experienced massive oversubscription, attracting bids worth 596% of the amount offered.
This trend reflects deep market caution. Investors, primarily commercial banks and pension funds, overwhelmingly prefer short-term, liquid assets, likely due to expectations of rising yields or economic uncertainty in the medium to long term.
The divergence in investor sentiment is evident in the yield curve. While yields on shorter-term bills (28-day to 182-day) fell significantly between July and September, the yield on the 364-day bill surged by 500 basis points, rising from 15.0% to 20.0%. This sharp increase in the cost of long-term borrowing indicates higher perceived risk and weak demand.
As a result, the government’s annual borrowing program has had a slow start. Three months into the fiscal year, the net issuance of Treasury bills totals only 19.7 billion birr, representing a mere 11.4% of the annual net issuance target of 172.9 billion birr. This situation puts significant pressure on the government to accelerate borrowing in the remaining three quarters.
Despite these challenges, the bulletin notes a “gradual improvement” in the bid-to-cover ratio for longer maturities, suggesting that the government’s issuance strategy may be slowly adapting. The overall auction in September was oversubscribed by 105.8%, indicating robust liquidity in the market, although it remains concentrated on short-term offerings.
In an effort to refinance maturing debt and address its funding gap, the government has announced a substantial Treasury bill issuance plan of 243.05 billion birr for the second quarter (October-December 2025).
However, with the domestic debt stock already at 2.56 trillion birr and largely held by a few key players—the Commercial Bank of Ethiopia (43%) and the National Bank of Ethiopia (26.3%)—the success of this plan depends on reversing the current trend and rebuilding investor confidence in Ethiopia’s long-term economic outlook.
By the end of September 2025, the 182-day and 364-day Treasury bills remained the largest components of outstanding Treasury bills, accounting for 38% and 37% of the total stock, respectively.
On the investor side, pension funds and the Commercial Bank of Ethiopia were the dominant holders, representing 38.5% and 38.4% of the total outstanding Treasury bills, respectively. Other financial institutions accounted for 15.9%, insurance companies held 5.5%, and other entities, including Ethiopian Investment Holdings, represented 1.7%.
