The International Monetary Fund (IMF) is calling for closer monitoring of banks’ net open positions (NOP) as Ethiopia advances its economic reforms.

In its latest statement, the IMF advised Ethiopian authorities to carefully oversee banks’ NOP, a regulatory requirement that all banks were expected to satisfy by the end of the previous financial year.

The IMF’s recent assessment highlighted the need for the National Bank of Ethiopia (NBE) to shift towards using the policy rate as its primary monetary policy tool. This move would replace traditional quantitative credit controls and enhance the management of inflation. This recommendation arose from the IMF’s Article IV consultation—the first in six years and the third review under Ethiopia’s Extended Credit Facility (ECF) arrangement.

The IMF’s Executive Board approved a USD 262 million disbursement, the fourth tranche of the USD 3.4 billion ECF program, recognizing Ethiopia’s progress in macroeconomic reforms over the past year.

Nigel Clarke, IMF Deputy Managing Director and Board Chair, commended Ethiopia’s strong reform efforts, noting resilient growth and a decline in inflation.

“Measures to modernize monetary policy, increase domestic revenue, strengthen social safety nets, reform state-owned enterprises, and ensure financial stability are yielding positive results,” Clarke said. “However, security challenges and declining donor support remain ongoing risks.”

He welcomed the NBE’s initiative to deepen the foreign exchange (FX) market and reduce distortions but urged caution, recommending additional measures if FX supply weakens or parallel market spreads widen.

“Maintaining tight monetary and financial conditions is crucial for controlling inflation,” Clarke added. “Next steps should include decisively shifting to a policy rate-based framework and enhancing the central bank’s communication and analytical capacity.”

The NBE has indicated its commitment to a tighter monetary stance, planning to utilize policy rates and other instruments to maintain control while preparing to lift credit caps in September.

The IMF emphasized the necessity for continued revenue mobilization to address fiscal gaps, alongside prudent spending and the development of the domestic bond market.

“Reducing financial repression and strengthening oversight will enhance financial stability and support private sector-led growth,” Clarke stated, underscoring the importance of monitoring credit risks and banks’ NOP compliance.

Earlier this year, the NBE instructed banks that did not meet NOP thresholds to achieve full compliance by June 2025, with the state-owned Commercial Bank of Ethiopia potentially receiving an additional one-year extension. The central bank also plans to refine NOP measurement, update prudential regulations, and improve data collection on banks’ FX positions.

Ethiopia’s chronic hard currency shortage has begun to ease since reforms were initiated in mid-2024, a development that the IMF has praised.

Authorities report progress in enforcing NOP rules, mitigating financial stability risks, and improving FX market transparency through measures such as regular forex auctions for banks.

The IMF urged further efforts to sustain gains in the FX market, enhance reserve coverage, and phase out remaining FX restrictions. It also called for finalizing the NBE’s legal reforms, including the appointment of qualified board members to strengthen institutional autonomy.

“Continued reforms will be crucial for locking in progress, maintaining competitiveness, and ensuring long-term stability,” the IMF concluded.

Ethiopia has reached a major breakthrough in its long-awaited debt restructuring process under the G20 Common Framework, signing a Memorandum of Understanding (MoU) with its Official Creditor Committee (OCC). The agreement, announced by the Ministry of Finance, formalizes a debt treatment plan agreed in principle earlier this year, providing Ethiopia with over USD 3.5 billion in relief.

This landmark deal marks a critical step toward restoring Ethiopia’s long-term public debt sustainability and concludes years of complex negotiations. The East African nation expressed deep gratitude to the OCC members, especially co-chairs China and France, for their unwavering support in reaching this agreement.With the MoU now signed, Ethiopia will work to finalize bilateral agreements with each OCC member to implement the agreed terms.

Eyob Tekalign, State Minister of Finance, emphasized Ethiopia’s commitment to a swift and cooperative process, “Ethiopia remains confident that the collaborative and pragmatic spirit that has prevailed so far will help expedite the process of finalizing bilateral agreements,” he stated. “We continue to engage in good faith with all other external creditors, including bondholders, to secure restructuring terms that align with our debt relief needs and the principle of comparability of treatment.”The government hopes this agreement will pave the way for similar deals with private creditors, ensuring comprehensive debt relief and reinforcing Ethiopia’s economic recovery efforts.

In a landmark move to modernize its financial sector, the National Bank of Ethiopia (NBE) has mandated the dematerialization of all government and NBE securities, transitioning from paper-based certificates to an electronic book-entry system. The new directive, No. MFAD/001/2025, aims to enhance market efficiency, transparency, and investor confidence while mitigating systemic risks.

As per the new directive all government and NBE securities must now be held electronically in a Central Securities Depository (CSD).The shift eliminates the need for physical documents, reducing fraud risks and streamlining transactions and the electronic records in the CSD will serve as the sole legal proof of ownership.

According to the directive NBE & Ministry of Finance oversee the transition, verify securities, and ensure data accuracy.

It added that CSD operator shall maintains digital records, assigns unique security codes (NSIN/ISIN), and enforces compliance.

The new directive indicated that banks and financial institutions, who are potential CSD members, would assist investors in converting physical certificates, conduct KYC checks, and submit documents to the CSD.

Investors who fail to convert their securities within five years will have them transferred to a special government account, with forfeited benefits unless valid justification is provided.The move positions Ethiopia’s securities market among modern, digitally driven economies, improving liquidity, reducing paperwork, and attracting more investors.