Ethiopia should accelerate financial sector reforms by easing exchange restrictions, strengthening interbank foreign exchange markets, and enhancing competition among banks to improve efficiency and fairness in the financial system, according to recent policy recommendations.
The proposals emphasize the importance of removing position limits and fostering a more market-driven foreign exchange system. Expanding the interbank FX market and ensuring equitable treatment of clients are seen as critical steps toward improving liquidity and transparency in currency operations.
A key recommendation also highlights the need for the National Bank of Ethiopia (NBE) to develop a clear strategy for reforming its role in the gold market. Authorities are encouraged to design a structured plan that improves gold market operations while gradually reducing direct central bank participation, in line with broader reserve accumulation objectives.
Maintaining a tight monetary policy stance remains essential to contain inflationary pressures, the recommendations note. The central bank is advised to remain vigilant and ready to tighten policy further if secondary inflation effects emerge. Continued modernization of the monetary policy framework, alongside efforts to build a competitive and market-oriented financial sector, is expected to strengthen policy transmission mechanisms.
On the fiscal front, prudent expenditure management and sustained domestic revenue mobilization are identified as central to ensuring macroeconomic stability and advancing development goals. While strong revenue performance has been welcomed, policymakers are encouraged to phase out fuel subsidies in a gradual manner while safeguarding vulnerable populations. Such measures would create fiscal space for increased investment in social and development priorities.
The recommendations also stress the importance of improving fiscal transparency, strengthening oversight of state-owned enterprises, and enhancing fiscal risk monitoring systems.
Progress on Ethiopia’s external debt restructuring remains a priority. Authorities are urged to continue engaging creditors in good faith to restore debt sustainability and secure financing. At the same time, exercising caution in contracting new debt and developing a liquid domestic currency market will be essential in reducing long-term vulnerabilities.
Further reforms in the financial sector are also highlighted, including strengthening regulatory oversight, enhancing financial safety nets, and closely monitoring private sector credit growth. Advancing central bank governance reforms—such as appointing independent board members and recapitalizing the NBE—is expected to reinforce institutional autonomy and improve policy effectiveness.
Together, these measures are seen as critical to stabilizing the economy, improving investor confidence, and supporting Ethiopia’s broader economic transformation agenda.
