Wednesday, February 21, 2024
BusinessGovernor Mamo set on quadrupling forex reserves by 2026

Governor Mamo set on quadrupling forex reserves by 2026

Current, capital account policies to undergo revision

The National Bank of Ethiopia (NBE) has unveiled a three-year strategy that regulators hope will enable them to boost foreign currency reserves to suffice for 2.5 months’ worth of imports. The value, based on the NBE’s USD 16.4 billion import figures from last year, would be close to USD 3.4 billion. It is close to four times the central bank’s current reserves of 0.7 months of imports, or around USD 900 million.

The strategy published last month is the latest among a series of maneuvers by Governor Mamo Mihretu since he took the helm from Yinager Dessie (PhD) a year ago.

He is the 10th governor to take the helm at the central bank since it was established six decades ago. A former staffer at the World Bank Group and a senior advisor to Prime Minister Abiy Ahmed (PhD), Mamo served as the founding chief executive officer of the Ethiopian Investment Holdings (EIH) before being appointed to his current post.

The Governor’s strategy is to “ensure price and external stability” in his bid to grow reserves to cover a whole month of imports (estimated USD 1.4 billion) by July this year, and 2.5 months by end of 2025/26.

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Among the obstacles Mamo and his team are looking to clear in the coming three years are the pervasive foreign exchange parallel market and illicit trade.

The document outlining the strategy refers to “macro imbalances in the form of high inflation, an overvalued exchange rate, and sizable debt service burden.”

The latest strategy includes an ambitious target to tie year-on-year inflation in the single-digit territory at eight percent, not unlike central bank strategies under Mamo’s predecessors. Nonetheless, the Governor wants to see inflation lowered to 20 percent by the end of the current fiscal year, and 10 percent the following year.

The latest data from the Ethiopian Statistical Service reveals the compounded inflation rate stands at 28.7 percent, with food items at 30.6 percent and non-food items at 26.1 percent. It is on par with inflation rates observed over the last few years.

The NBE has included an objective to “transition to a market-based monetary policy regime” and stated intentions to review policies for current and capital accounts.

“A review of current account and capital account restrictions and policies will also form part of this agenda,” reads the strategic plan.

The strategy entails the establishment of a Monetary Policy Committee next year, which will be responsible for setting interest rates. The central bank says it is gearing up to “evolve from the current system of targeting monetary aggregates towards a price-based monetary policy regime.” 

Zemedeneh Negatu, chairman of Fairfax Africa Fund, sees the central bank’s new roadmap as a marker of a shift at the regulatory institution.

“Disclosing clear targets is very good for investors and people like us. It helps investors have an understanding of what the state of the economy will be in the near future, which is crucial for making investment decisions,” he said. “The NBE did not have such tailored and specific targets before. This is a good indication of reforms taking place at the central bank.”

The NBE establishment proclamation is also set for revision by lawmakers this financial year, with a review of current and capital account policies scheduled to take place by December 2025.

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Video from Enat Bank Youtube Channel.

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