In a recent address to various segments of the public, including regional leaders, ministers, and investors, Prime Minister Abiy Ahmed urged Ethiopian banks to take decisive action to reduce the significant gap between the official exchange rate and the black market rate. Highlighting the urgency of the issue, the Prime Minister emphasized that the current practice of minor daily adjustments of 2 or 3 birr to the official exchange rate is insufficient, given the black market’s much larger fluctuations of 40-50 birr.
The Prime Minister expressed concern over the complacency observed in the banking sector regarding the exchange rate disparity. He underscored the necessity for banks to adopt more aggressive measures to stabilize the currency market and prevent further economic disparity. “We cannot allow the black market to dictate our exchange rates and create an unsustainable economic environment,” he stated.
The Prime Minister’s speech also brought attention to Ethiopia’s recent financial agreements with the International Monetary Fund (IMF) and the World Bank. He revealed that these deals were instrumental in rescuing the Commercial Bank of Ethiopia (CBE) from a precarious financial position. A substantial injection of $700 million was secured, which played a crucial role in stabilizing the bank after it faced significant challenges due to an inability to recover funds from borrowers involved in several failed projects. This bailout underscores the critical state of the banking sector and the urgent need for comprehensive reforms.
Furthermore, Prime Minister Abiy Ahmed called on Ethiopian banks to transcend ethnic and religious divisions and consider mergers as a strategy for strengthening the financial sector. He argued that merging banks would enhance their operational capacity, increase their resilience, and better serve the diverse population of Ethiopia. “Our financial institutions must rise above ethnic and religious differences to build a robust and unified banking system capable of supporting our nation’s development,” he asserted.
The Prime Minister’s address signifies a pivotal moment for the Ethiopian banking sector, as it faces mounting pressure to implement reforms that will bridge the exchange rate gap and foster a more inclusive and resilient financial environment. The call to action is clear: Ethiopian banks must move beyond incremental changes and embrace bold, transformative measures to ensure economic stability and growth.
Key Points:
- Exchange Rate Disparity: PM Abiy Ahmed urged banks to address the significant gap between the official exchange rate and the black market rate, criticizing the complacency of minor daily adjustments.
- IMF and World Bank Deal: Ethiopia’s recent financial agreements with the IMF and World Bank injected $700 million into the Commercial Bank of Ethiopia, highlighting the critical need for financial stability.
- Call for Bank Mergers: The Prime Minister encouraged banks to overcome ethnic and religious divisions and consider mergers to strengthen the banking sector’s capacity and resilience.
- Economic Stability: Emphasized the necessity for bold reforms to ensure a sustainable and inclusive economic environment in Ethiopia.
