Ethiopia: How Far Reform Unlocks Financial Sector Opportunities?

Ethiopia’s sweeping macroeconomic reforms, launched last year, are beginning to bear fruit–particularly in the financial sector, where liberalization is opening new doors for both domestic and international players.

The country’s transition from a state-controlled economic model to a more market-based, inclusive, and globally competitive financial system is well underway, according to senior government officials.

Governor of the National Bank of Ethiopia (NBE), Mamo Mihretu, stated that a series of transformative initiatives have reshaped the country’s monetary policy, exchange rate regime, and financial architecture.

The reforms have made price stability the central focus of monetary policy and introduced a benchmark policy rate alongside the establishment of a Monetary Policy Committee. These measures have brought a new level of transparency and predictability to macroeconomic management, a shift from previous practices.

One of the most significant developments is the introduction of Open Market Operations and the inter-bank money market. The latter has already recorded promising activity, with cumulative transactions surpassing 628 billion Birr. According to the Governor, this reflects increased liquidity and confidence among financial institutions, as well as growing sophistication in Ethiopia’s domestic capital markets.

On the foreign exchange front, Ethiopia has moved closer to a market-driven exchange rate system. Key liberalization measures include the removal of surrender requirements, the easing of foreign borrowing regulations, and the facilitation of foreign portfolio inflows. These steps have boosted exports, attracted capital investment, and enhanced remittance inflows, according to NBE reports.

“These reforms have had tangible macroeconomic impacts. Inflation, which once neared 30%, has dropped to 13.6%–a five-year low. Meanwhile, foreign exchange reserves have grown by 200%, and goods exports have increased by 108%,” the Governor noted.

The reform agenda extends beyond domestic priorities. A major pending legal shift involves opening Ethiopia’s banking sector to foreign banks–a move expected to intensify competition, introduce global best practices, and spur innovation. The interest of international players such as Kenya-based KCB Group, which maintains partnerships with 19 Ethiopian banks and holds substantial foreign currency credit lines, signals growing external confidence.

KCB CEO Paul Russo described Ethiopia’s financial landscape as one undergoing “visible transformation” and reaffirmed the bank’s commitment to expanding its footprint in the country.

NBE Advisor Jotework Ayele contextualized the reforms within Ethiopia’s broader economic and demographic profile. With a population exceeding 120 million–over 70% of whom are of working age–Ethiopia represents one of Africa’s largest untapped markets. The evolving legal framework, youthful population, and growing remittance inflows make the country an increasingly attractive destination for financial investment and innovation, she emphasized.

A landmark development in this regard is the government’s recent policy initiative to establish the Ethiopian Securities Exchange. This new platform is expected to significantly enhance capital mobilization, allowing both public and private entities to raise funds more efficiently.

At a recent forum, President Taye Atske-Selassie underscored the historic nature of this reform period, calling it “a special opportunity in Ethiopia’s economic history.” He urged financial institutions to expand their outreach, tailor services to meet customer needs, invest in digital infrastructure, and nurture skilled talent to fully capitalize on the opportunities emerging from the reform process. His remarks reflect the dual objectives of the reforms: driving economic growth while promoting social inclusion.