In a landmark event for Ethiopia’s financial sector, the Ethiopian Securities Exchange (ESX) officially began public trading of government treasury documents and other securities today. This historic milestone signals the formal inauguration of Ethiopia’s capital market, the culmination of years of strategic economic reforms aimed at modernizing the country’s financial system.

The inauguration ceremony, held on July 11, was jointly organized by the National Bank of Ethiopia (NBE), the Ethiopian Capital Market Authority (ECMA), the Central Securities Depository (CSD), and the ESX. The event marks a new chapter in Ethiopia’s economic development, promising enhanced transparency, expanded market-based financing options, and improved access to investment opportunities for a broader range of participants.

Since 2011, the Ethiopian government has pursued a deliberate strategy to establish a robust capital market system. This effort, rooted in the country’s indigenous economic reform agenda, has focused on developing comprehensive legal frameworks, building key institutions, and deploying modern technological infrastructure to support market operations.

A centerpiece of this infrastructure is the state-of-the-art electronic Central Securities Depository (CSD), established under the National Bank of Ethiopia. The CSD facilitates the issuance, trading, and secure custody of both public and private sector securities and is fully integrated with the ESX’s electronic trading platform. It serves as a critical foundation for post-trade processes, ensuring efficiency and security in market transactions.

Mamo Mihretu, Governor of the National Bank of Ethiopia, emphasized the institution’s commitment to nurturing the capital market ecosystem. “The NBE is dedicated to enhancing the capital market system and its supporting infrastructure through continuous innovation and collaboration, supporting Ethiopia’s long-term financial prosperity,” he said.

The Ethiopian Capital Market Authority has played a pivotal regulatory role in shaping the market’s development. Hana Tehelku, ECMA Director General, hailed the launch as a historic achievement for the nation’s financial sector. “This milestone opens new investment avenues and reflects years of dedication to building a transparent, inclusive, and resilient capital market that underpins sustainable economic growth,” he remarked. He further affirmed the Authority’s commitment to fostering a secure and adaptable market environment that benefits all Ethiopians.

Prior to today’s launch of government securities trading, the ESX has been operating a cash market platform for banks in partnership with the National Bank and commercial banks since October 2023, laying important groundwork for broader market activity.

Tilahun Kassahun (PhD), CEO of the Ethiopian Securities Exchange, praised the collaborative efforts behind this achievement. “Today’s event is a testament to the hard work and dedication of all stakeholders who have contributed to strengthening Ethiopia’s capital market over recent years,” he said. He noted that the registration and trading of government debt securities on the exchange mark the opening of a new chapter for Ethiopia’s debt securities market and demonstrate the effectiveness of the country’s modern market infrastructure.

NBE absorbed half a trillion birr

A record amount of liquidity was traded this week as the National Bank of Ethiopia (NBE) celebrated the first full year of its Open Market Operations (OMO) auctions. Since implementing the new monetary policy framework in early July of last year, the central bank has held its inaugural OMO auctions, with commercial banks actively participating and trading over half a trillion birr.

In the past year, the NBE absorbed an impressive 579.4 billion birr through these auctions. The liquidity-absorbing instrument, offering a National Bank Rate (NBR) of 15%, has generated significant interest among banks.

With a two-week maturity period, the OMO serves as an effective tool for controlling inflation.

Under the new monetary policy framework launched at the beginning of the 2024/25 fiscal year, the NBE conducts biweekly auctions to manage liquidity within the banking system, adjusting its approach based on economic conditions to either withdraw or inject funds.

To date, the NBE has primarily focused on absorbing excess liquidity rather than injecting funds.

Over the past year, a total of 26 OMO auctions were held, with an average of five bidders participating in each session.

According to NBE data, the highest participation occurred during the second auction on July 25, 2024, where 21 banks participated, with an allotted amount of 37.5 billion birr.

In contrast, the lowest participation happened during the 10th auction on November 14, 2024, when only one bidder offered 6.3 billion birr.

Experts noted that financial institutions were less active in the first half of the fiscal year, attributing this to lower liquidity.

However, in the latter half, both the number of participating banks and the amounts offered in the auctions increased significantly.

The largest single auction allotment in the inaugural year was 45.25 billion birr, secured from four bidders during the 19th auction on March 20.

Towards the end of the fiscal year, six participants offered a total of 44 billion birr.

The most recent OMO auction, held on Thursday, July 10, 2025—the first for the new budget year—saw a record allotment of 64.9 billion birr from 13 banks, the largest amount since the market’s inception a year ago.

Experts explained that OMOs are crucial tools used by central banks to regulate money supply and influence interest rates, primarily in the secondary market for government securities.

While OMOs can impact the primary market, their main purpose is to manage liquidity and credit conditions in the broader economy.

When excess liquidity in the banking system causes the interbank market rate to fall significantly below the NBR, the central bank conducts OMO auctions to withdraw the surplus.

Conversely, if a liquidity shortage pushes the interbank market rate well above the NBR, the NBE will use OMO auctions to inject liquidity into the market.

Additionally, as part of its latest monetary policy framework, the NBE has introduced an Overnight Lending Facility and an Overnight Deposit Facility to assist banks in managing their daily liquidity needs.

These standing facilities will be available at the NBR rate plus or minus 3%, providing banks with flexible options for short-term liquidity management. So far, 834 billion birr has been traded in these instruments.

The Ethiopia Deposit Insurance Fund (EDIF) has reported a notable increase in premium collections, exceeding projections as financial institutions enhance their deposit mobilization efforts. Following last week’s proposed income tax amendment draft proclamation, which already considers the fund tax-exempt, EDIF is now pursuing additional policy measures, including an exemption from value-added tax (VAT).

Since its launch in April 2023, EDIF has completed its second full fiscal year, collecting over 7.1 billion birr in premiums from 86 financial institutions, including 55 microfinance institutions (MFIs). This represents a 17% increase from the previous year’s 6.1 billion birr in contributions.

EDIF CEO Desalegn Ambaw stated that the fund has mobilized nearly 14 billion birr in its first two years of operation. Moreover, EDIF’s total investments—primarily in treasury bills—reached 15.1 billion birr in the 2024/25 budget year, indicating robust financial growth and stability.

The fund is actively seeking policy enhancements to further strengthen its financial base and ensure long-term sustainability.

Desalegn, the founding CEO and former state minister across multiple ministries, noted that the organization has surpassed its revenue targets.

“The significant growth in deposit mobilization at financial institutions has led to higher premium collections,” he explained, highlighting that increased interest revenue from treasury bills (T-bills) has also significantly contributed to revenue growth.

As part of the macroeconomic reforms introduced a year ago, the government has restructured the treasury bill auction process, offering more attractive interest rates to bidders to stimulate greater investment. Currently, the yield on T-bills has reached approximately 18%, significantly above both the inflation rate and the policy rate.

Solomon Desta, Vice Governor for Financial Institutions Supervision at the National Bank of Ethiopia (NBE), noted that deposit mobilization through banks and MFIs reached 3.25 trillion birr, a 34.3% increase from the 2.5 trillion birr recorded in June 2024.

While he acknowledged that 14 billion birr is a considerable amount, he emphasized the need for continued efforts to mobilize even more funds, particularly to protect depositors, especially small-scale savers in society.

At a workshop held on Thursday, July 10, Solomon pointed out that in developed countries, similar funds mobilize between five to seven percent of total deposits, while in Sub-Saharan Africa, the figure is about three percent. “We have a lot of work to do to reach at least the minimum mobilization level of our peers,” he stated.

He explained to Capital that although total deposit mobilization is significant, the amount raised by EDIF remains important. “Some deposits are tied to the government or related entities, so the funds collected by EDIF do not represent a small portion,” he added.

Merga Wakweya, Operations Directorate Director of EDIF, emphasized that the fund is mobilized for social objectives rather than profit. “Therefore, the revenue generated as premiums should not be considered income,” he clarified.

He informed Capital that EDIF’s leadership has been advocating to relevant government bodies for an exemption of its revenue from profit tax, a practice common in other countries.

Desalegn recalled that this exemption was initially included in EDIF’s formation proposal but was later removed when the establishment law was enacted.

The Operations Director stated that the draft amendment to the income tax proclamation, tabled in parliament a week ago, includes a provision exempting the EDIF premium from income tax deductions.

“After tireless efforts to lobby the relevant government bodies, we succeeded in securing this exemption, and we hope lawmakers will approve the amendment,” Merga concluded.

He stated that VAT is another issue for which the Fund is seeking similar relief. “So far, we have not been required to pay VAT, but there are concerns that tax authorities may demand it in the future,” he explained.

The VAT proclamation, amended about a year ago, is a separate tax law. The Fund is now advocating for an additional provision that would exempt it from VAT obligations.

According to its leadership, the Fund’s primary objective is to protect smallholder depositors, currently up to 100,000 birr. “In principle, we believe this amount should be periodically revised to align with international best practices,” they noted.

Established in March 2023, the Ethiopian Deposit Insurance Fund (EDIF) aims to safeguard the stability, security, and soundness of the nation’s financial system, protecting 97% of depositors at financial institutions with assets below 100,000 birr.

The CEO reported that the state-owned Commercial Bank of Ethiopia contributed 49 percent of the fund, while private banks supplied the remaining amount, with microfinance institutions holding a minor share.

Under Article 19 of EDIF’s Establishment and Operation Regulation No. 482/2021, the Fund is authorized to invest its resources in government securities, government-guaranteed securities, or any other approved investment mode.

Desalegn explained that the Fund has thus far focused on Treasury bills (T-bills) and interest-free compliant businesses, as approved by its board. “If the board, chaired by Solomon, the Vice Governor of NBE, gives the green light, we will also participate in other bonds set to be introduced soon through the Ethiopian Securities Exchange (ESX),” he said.

He informed Capital that ESX had approached the Fund to play a key role in the exchange platform, adding, “We will consider the proposal.”

Currently, the Fund applies a flat-rate deduction of 0.3 percent on total deposits from all financial institutions. However, the leadership stated during a workshop that it plans to transition to a risk-based deduction model in the future, which is common among similar institutions.

Solomon told Capital that the establishment of the Ethiopian Deposit Insurance Fund not only boosts depositor confidence but also attracts investors interested in the country’s financial sector.

“Foreign investors considering Ethiopia assess the country’s risk profile. They also evaluate whether prudent financial infrastructure, such as a financial safety net—including a lender of last resort and deposit insurance like EDIF—is in place,” he explained. “Now, we have a system that will strengthen their confidence, as we have the necessary infrastructure to manage financial risks.”

Ethiopia has currently opened its financial sector to international investors.