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NewsAmid calls for restructuring, autonomy, central bank gets new governor

Amid calls for restructuring, autonomy, central bank gets new governor

Prime Minister Abiy Ahmed (PhD) has reshuffled top officials during the past week, a curious but not entirely unexpected move. Ministers and high-ranking officials from both the Amhara and Oromia factions of the Prosperity Party were shuffled around, and the reasons for this are up for debate.

The reorganization took place barely a few months after the federal government reached a peace agreement with the Tigray People’s Liberation Front (TPLF) in Pretoria, South Africa, on November 2, 2022, putting an end to a two years’ war.

The choice of a new governor for the National Bank of Ethiopia (NBE) has become the most contentious of the new appointments, according to experts and government officials The Reporter spoke with.

To replace Yinager Dessie (PhD), Abiy appointed Mamo Mihretu as the new governor of NBE. Yinager, a former planning commissioner, was appointed by Abiy as head of the NBE in 2018.

In January 2022, Mamo was appointed to the position of chief executive officer (CEO) of Ethiopian Investment Holding (EIH). He has also worked as a trade negotiator for Ethiopia and as an officer for the World Bank’s International Financial Corporation (IFC).

Mamo had just started his job at the EIH, the state’s newly established sovereign wealth fund, and his reshuffle came as a surprise to many. A source close to the mater says that Eyob Tekalign (PhD) was the most likely candidate to succeed Yinager.

However, Eyob was unable to resign from his position as state minister of finance, where he has to play a pivotal role in the partial privatization of ethio telecom, the issuance of new telecom licenses, and the privatization of other SOEs.

“The overall objective of the reshuffle is to remove officials who might be obstacles to the implementation of the Pretoria peace agreement,” said an insider who spoke to The Reporter on the basis of anonymity. “The reshuffle is also intended to make room for Tigray officials, who will be represented in the federal government once the TPLF is removed from the terrorist list by Parliament.”

Mamo is also expected to implement the government’s policies, particularly those aimed at bridging the fiscal deficit.

The central bank has lost its institutional independence, and the country has no independent monetary policy-making institution, according to the insider. “The NBE is under the shadow of the PM’s macroeconomic team and is inferior to its fiscal policy.”

The insider believes that the NBE cannot independently plan its own monetary policies, even though there is a monetary policy committee, under the shadow of the macro committee. “The macro committee’s concern is the budget deficit. The central bank is being used to print money, including under informal systems, and inject it into the economy,” stated the insider.

But Abdulmenan Mohammad (PhD), a London-based financial expert who closely follows up on Ethiopia’s financial system, says Mamo was assigned as the governor because he is ideal to implement the government’s new reforms in the financial sector.

“The government plans to float the exchange rate in the next three years, according to the Homegrown Economic Reform Plan. It is also opening up the banking sector for foreign investors, and Mamo is highly pro-liberalization and is ideal to lead such reforms,” Abdulmenan said.

Tough tasks, including handling the piled-up non-performing loans (NPL) in war-affected northern Ethiopia, conducting the currency redemption in Tigray, taking a cautious approach to inflation, and narrowing the gap between the official and the black market are tasks awaiting Mamo.

For Abdulmenan, re-institutionalizing the central bank and detaching it from the executive branch is the only way to control inflation, improve access to finance, and create a central bank that delivers forward-looking analysis that is indicative for investors.

“The NBE has to be reorganized as an independent and autonomous institution. Its establishment proclamation must be amended. The Parliament must approve the appointment of governors, and its accountability should be to the Parliament, not to the PM,” stressed Abdulmenan.

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