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Experts insist on restructured NBE

Economists and financial experts have called on the government of Ethiopia to seriously look at the state of the National Bank of Ethiopia (NBE) and consider restructuring it in time, while some going to the extent of reducing the central bank to an institution primarily engaged in undertaking money printing, an expression connoting the power of central banks to create money.

During the second series of the Ethiopian Economics Association (EEA’s) National Policy Workshop held on Thursday, Eyob Tesfaye (PhD), a senior macroeconomist who chaired the workshop, insisted that NBE has to undergo a serious restructuring process to enable it become a well capacitated central bank that can address mismanagement and misallocation of financial resources in the country.

Eyob, a former official with NBE and currently a board member of the Commercial Bank of Ethiopia (CBE) said that, the bank has not been playing its role in managing risk, assuring resilience in the financial sector and nurturing fairness in the resource allocation process. Lack of competition in the financial sector and NBE's weak capacity to analyze projects and the return on investment endangering the overall national economy are some of the reasons behind call for the restructuring of the central bank, he added.

The workshop dubbed: “The State of Financial Intermediation and the Resilience of the Ethiopian Financial System,” also saw senior economists like Gebrehiwot Ageba (PhD), a graduate of Oxford and Glasgow Universities, speak at the panel. He has questioned the capacity and the status of the NBE in implementing policies that are similarly adopted and implemented by the likes of China and India, effectively.

While discussing the Ethiopian financial sector, Tewodros Mekonnen (PhD), economist with the International Growth Center (IGC) and executive board member of EEA, claims that the lack of independence and undue political influence on NBE has curtailed the institution from executing its responsibilities properly. In fact, Gebrehiwot goes on to argue that most of the bad loans which haunt the banking sector in Ethiopia are in one way or the other related to such kind of political interferences. Politicians interfere and force banks to delay loan repayments, Gebrehiwot claims, adding that such practices are quite common among some of the State owned Enterprises (SoE’s) in Ethiopia. Government officials direct bankers and order them to “just leave them alone,” claims Gebrehiwot.

The lack of financing for project ideas, innovation and technology, limited outreach and heavy collateralization, lack of capacity of regulators and concentration on controlling financial institutions rather than incentivizing and nurturing the sector are some of the major criticisms Michael Addisu, founder and board member of Nisir Microfinance Institution, have against the Ethiopian baking system and its regulator NBE.

Mesfin Namarra, a former Member of Parliament (MP) and bank regulator who worked with NBE for a number of years, also have some serious misgivings about the failure of NBE in curbing the runaway inflation rate that is challenging the macroeconomic stability of the country. He claims that NBE remains to be a “money printer and has never been open to speak to the public about inflation and cost of living.” He also decried how unfair banks are allocating resources. Substantiating his claims, he mentioned how CBE has mobilized some 125 million birr in savings from his constituency in Nedjo, some 500 kilometers from Addis Ababa. However, the bank has allocated only eight percent of that savings to the town in form of loan.

Muluneh Ayalew, a macroeconomist with NBE, argued that most of the policy interventions by NBE have played a significant role in mitigating inflationary situations in Ethiopia. He said that the NBE-Bill was introduced with a “good intention” while admitting failure in utilizing them for projects the government deemed beneficiary to the society.

The experts have echoed the need to reverberate and restructure the central bank so that it could play its assigned role in the economy. According to Eyob, the ongoing “Homegrown Economic Reform” is expected to address the structural and capacity related shortcomings of the financial sector, including the NBE.