Ethiopia Financial Sector Development : The Path to an Efficient Stable and Inclusive Financial Sector
Ethiopia’s financial sector has, over the past decade, been operating under a financial repression framework used by the government for managing its monetary and foreign exchange policy, and financing of large infrastructure projects and state-owne...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2020
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| Online Access: | http://documents.worldbank.org/curated/en/302351592971524908/Ethiopia-Financial-Sector-Development-The-Path-to-an-Efficient-Stable-and-Inclusive-Financial-Sector http://hdl.handle.net/10986/34065 |
| Summary: | Ethiopia’s financial sector has, over
the past decade, been operating under a financial repression
framework used by the government for managing its monetary
and foreign exchange policy, and financing of large
infrastructure projects and state-owned-enterprises (SOEs).
Instruments used under this framework include the central
bank financing of the government, a state-dominated banking
sector, mandatory financing of priority projects and
directed credit, administered interest rates, a captive
domestic market for government debt, high liquidity and
capital requirements, and strict foreign exchange controls.
Over time, the framework has led to the build-up of large
macro-financial imbalances; these include a system of fiscal
dominance, pressures on inflation, the overvaluation of the
Birr, a chronic shortage of foreign exchange, the lack of
development of the financial system, a credit allocation
skewed toward the public sector, and an overall risk of
malinvestment. This report was prepared as part of a
technical assistance engagement and was based on a request
from the National Bank of Ethiopia (NBE) as an input to
support their development of a financial sector
modernization roadmap to meet the overall government reform
plans. The report provides an insight on operations and
challenges in Ethiopia’s financial sector and proposes a
framework to help open and transform the current system to
meet the country’s future market-oriented growth plan. The
report is organized along the NBE Roadmap framework which is
aligned across three pillars: (i) financial stability and
safety net; (ii) long-term finance and financial markets;
and (iii) access to finance and financial inclusion. Opening
of the financial sector constitutes a cross-cutting theme. |
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