Ethiopia’s sweeping overhaul of its foreign exchange regime has been welcomed with cautious optimism by financial experts, who say the reform marks a decisive step forward but warn that its success will depend on rapid capacity building and clear operational guidance extending beyond the banking sector.
The reform, led by the National Bank of Ethiopia (NBE), forms part of a broader macroeconomic adjustment programme aligned with the International Monetary Fund (IMF)’s Article VIII principles. The measures are designed to liberalise access to foreign currency, strengthen Ethiopia’s integration into global trade, and boost investor confidence.
A Long-Awaited Shift
Eshetu Fantaye, a veteran banker and former president of several commercial banks, described the reform as bold but overdue. He argued that had similar measures been introduced at the outset of Ethiopia’s wider economic reform programme, the country might have been better positioned to secure foreign currency inflows and cushion the depreciation of the birr.
Earlier action, he noted, could also have eased price volatility in essential commodities such as edible oil. Nevertheless, he characterised the current changes as a critical second-generation reform in foreign currency administration — one that touches operations, reserve management, trade flows, and the balance of payments.
“If these changes had been introduced immediately after foreign currency administration was delegated to commercial banks in 2004, our economic trajectory might have been very different,” Eshetu said.
Eshetu who is now working as a consultant to local and international institutions, believes the reform signals regulatory continuity and commitment, which could strengthen Ethiopia’s credibility among international partners. However, he stressed that implementation capacity — both within the regulator and commercial banks — will determine its ultimate impact.
One of the most significant changes allows banks to offer forward exchange contracts in addition to spot transactions. This gives importers and exporters greater flexibility to manage currency risk.
Eshetu cautioned, however, that local banks will need time and technical preparation to effectively introduce such instruments, particularly under provisions such as Article 3.1 of the amendment. Articles addressing international lending, forward contracts, and guarantees require sophisticated risk management frameworks that cannot be built overnight.
He urged major banks to collaborate with international partners — through technical assistance or strategic alliances — to accelerate knowledge transfer and system development. Without such preparation, he warned, domestic institutions could lose ground once internationally experienced banks enter the Ethiopian market.
Eshetu also called on the NBE to establish clear implementation timelines to prevent delays. “If left to their own pace, banks may only respond when foreign competitors arrive,” he noted.
Addressing Repatriation Concerns
A central objective of the reform is to restore confidence among foreign investors, particularly regarding the repatriation of dividends and capital.
During a recent parliamentary session, NBE Governor Eyob Tekalegn stated that long-standing repatriation bottlenecks have largely been resolved following a fundamental restructuring of the foreign exchange system in mid-2024.
“International investors have frequently expressed concern about Ethiopia’s currency regime,” he said. “The updated framework has significantly improved confidence.”
Under the revised directive, investors may now remit net profits abroad without prior central bank approval, provided documentation is verified by commercial banks. Eyob added that no investor at a recent meeting with the American Chamber of Commerce in Ethiopia reported difficulties repatriating funds.
Eshetu, however, advised vigilance. He recommended that the NBE compile a comprehensive account of outstanding dividend and repatriation obligations to ensure transparency and smooth settlement.
Private Sector Reaction
Private sector leaders have broadly welcomed the changes. Harsh Kothari, CEO of the Mohan Group and an early investor in the Dire Dawa Free Trade Zone, described the move as exceptionally bold.
“This reform builds confidence,” Kothari said, noting that liberalised currency rules demonstrate Ethiopia’s readiness to compete globally. For foreign investors, he added, the message is clear: capital can move freely and predictably. “We have already been enjoying these freedoms at the Free Trade Zone,” he said.
He added that the sweeping reforms signal Ethiopia’s readiness to engage in global competition. “This decision does two things: it gives confidence, and at the same time, it demonstrates our capacity,” Kothari explained.
For foreign investors, the message is equally powerful. “It tells them that their foreign currency is truly their own and that they can move their capital at any time,” said Kothari, whose family has been doing business in Ethiopia for over a century. “I believe this reform is primarily about building that trust.”
Kothari also expressed confidence in the ability of Ethiopian investors to thrive in this new, open environment, not only within Ethiopia but also on the global stage. “For more than two decades, Ethiopian investors have been competing successfully with foreign direct investment (FDI) here at home. Even without explicit government policy guiding them in the past, many Ethiopian businesses have already ventured outside the country, proving they have the awareness and capability to compete in international markets,” he told Capital.
Daniel Getnet, an FDI and legal consultant, echoed this sentiment, arguing that the directive significantly reduces one of the main concerns raised by international investors — swift profit repatriation.
At the same time, experts have called for transparent criteria governing outward investment approvals. Without clear guidelines, Daniel warned, the NBE’s discretionary authority could create uncertainty.
Key Features of the Reform
The National Bank of Ethiopia has implemented one of the most significant overhauls of the nation’s foreign exchange architecture in decades, adopting core recommendations of the International Monetary Fund’s Article VIII as part of an ongoing macroeconomic reform programme.
In its latest directive amendment, the central bank removed a broad array of longstanding restrictions, granting exporters the right to retain one hundred percent of their proceeds indefinitely and permitting authorised banks to issue internationally recognised cards against foreign currency accounts for outbound retail payments, including e-commerce, provided sufficient balances are held.
Foreign exchange account holders, including those with retention accounts, may now directly debit their accounts to cover education, medical, and travel expenses for spouses and children upon presentation of valid documentation, while the previous minimum balance requirement of one hundred US dollars to open foreign exchange savings accounts for resident and non-resident Ethiopians and foreign nationals of Ethiopian origin has been eliminated.
Profit-making institutions may open current, savings, and time deposit foreign exchange accounts provided the currency originates from grants, gifts, or other non-export sources, and outbound investment by Ethiopian nationals is now permitted subject to case-by-case approval by the National Bank.
Individuals entering Ethiopia may convert foreign currency at authorised bureaus without presenting a customs declaration or deposit the full amount into their foreign currency accounts, while outbound remittances of up to three thousand US dollars are allowed for both account holders and non-account holders supporting family members abroad.
Investors repatriating dividends may remit net profits abroad without seeking National Bank approval upon submission of required documentation verified by commercial banks.
In a parallel move to strengthen the independent foreign exchange bureau network, the central bank has released the full thirty million birr security deposit to forex bureaus operational for one year or more, and half that amount to those operational for at least six months, while raising the cash holding limit from ten to twenty-five percent of capital, with any excess to be sold to commercial banks.
Forex bureaus are now additionally permitted to sell foreign currency cash for domestic payments including visa, immigration, and licence fees upon presentation of payment evidence.
Foreign direct investment enterprises, embassies, international organisations, and non-governmental organisations may open foreign exchange accounts at any authorised bank without an approval letter from the National Bank of Ethiopia.
The directive represents one of the most significant overhauls of the nation’s foreign exchange architecture in decades and is intended to enhance private sector flexibility, deepen financial inclusion, and support durable external sector stability in alignment with international best practice.
Despite broad support for the changes, business leaders caution that macroeconomic reform alone will not guarantee success. A stable and peaceful domestic environment, they stress, is essential to unlock the full benefits of liberalisation.
As Eshetu concluded, “The framework is now stronger. What matters next is implementation, capacity, and maintaining the stability that allows confidence to grow.”
