Business NBE Governor hails forex market reforms for doubled reserves
By Sisay Sahlu
November 30, 2024
Central bank Governor Mamo Mihretu asserts that foreign currency reserves in the Ethiopian banking system have doubled to almost USD six billion in the months since the government liberalized the forex market.
He disclosed the figure while presenting an update about Ethiopia’s forex reforms to the European Chamber of Commerce on November 21, 2024. The Governor said banks, including the National Bank of Ethiopia (NBE), have USD 5.9 billion in their coffers, up from USD 3.1 billion in July 2024.
The central bank accounts for USD 3.4 billion of the total, according to a statement the Governor made three weeks ago. Commercial banks hold the remainder.
In its recently published first review of the Extended Credit Facility (ECF) arrangement underway since August 2024, the International Monetary Fund (IMF) cited central bank reserves of USD 3.1 billion.
The IMF document indicates the NBE’s forex reserves sat at close to USD one billion in 2023/24, sufficient to cover half a month’s worth of imports. Reserves have typically remained lower than USD 1.6 billion for the last several years, particularly following the start of the northern war in late 2020.
However, the Fund projects reserves will rise to USD 5.3 billion in 2025/6, equivalent to an estimated 2.1 months of imports, and USD 11 billion or 3.6 months of imports by 2028/29, when the IMF’s four-year program is set to end.
Reports from the IMF, Ministry of Finance, and NBE indicate that reserve levels have risen sharply since the forex policy reforms of July 2024, and Mamo’s latest statement suggests Ethiopia has made better progress than forecasted by experts at the Fund.
“The reform’s immediate impact includes a sharp reduction in the parallel market premium, which fell from nearly 100 percent to near five percent. Remitters sending money from abroad now receive bank rates that are as competitive as those offered by remittance companies. Additionally, FX transaction volumes have surged, with banks purchasing an average of USD 500 million per month and selling an average of USD 700 million per month over the past quarter. The reform has doubled the FX reserves in Ethiopia’s banking system from USD 3.1 billion to USD 5.9 billion,” the Governor said during his presentation to EuroCham.
He attributed reserve growth to proceeds from the export of gold and other commodities, and stated that the private banking industry has largely cleared half a billion dollars in net forex liabilities.
Banks have also traded close to USD 100 million on an interbank FX market launched shortly following the floating, according to the Governor.
The IMF report corroborates the sharp growth in reserve levels and higher-than-projected gold export revenues, but reveals that underwhelming FX sales by the NBE also contributed to what it describes as an “overperformance.”
It reveals the central bank sold just USD 30 million during its forex auction in August.
Together with USD 491 million allocated to the state-owned Commercial Bank of Ethiopia (CBE) to settle LCs related to fuel imports, the NBE’s net forex sales since the start of the IMF program amount to USD 521 million, according to the report.
Editor’s Note
This article was initially published as “NBE Governor contradicts himself, IMF in forex reserves statements”. However, The Reporter has verified that the USD 5.9 billion Governor Mamo Mihretu referred to was indicating the total reserves in Ethiopia’s banking system rather than the reserves of the National Bank of Ethiopia (NBE).
The latter holds USD 3.4 billion, while the country’s commercial banks account for the remaining USD 2.5 billion. Therefore, the Governor’s statements and data published by the International Monetary Fund (IMF) are not contradictory.
The Reporter regrets the misunderstanding and extends its sincere apologies to readers for any inconveniences or confusion the article might have caused.