IMF Stresses Need for Ethiopia's Central Bank Independence to Stabilize Economy

‹‹If the Central Bank does not base its decisions solely on data, it will not benefit the country or the economy››

Kristalina Georgieva, IMF Managing Director

The International Monetary Fund (IMF) has publicly stated that Ethiopia's National Bank must ensure institutional independence to make decisions free from government influence. This was revealed during a press briefing by IMF Managing Director Kristalina Georgieva and Ethiopia's Finance Minister Ahmed Shide on January 1, 2017 (Ethiopian Calendar), following her two-day visit to Ethiopia.

During her stay, Georgieva discussed with National Bank Governor Mamo Mihretu the importance of implementing monetary policies that stabilize borrowing costs, reduce debt payments, and curb inflation to revitalize the economy. She emphasized the necessity of the National Bank's independence from government influence and the importance of its decisions being autonomous.

The IMF, while evaluating Ethiopia's economic reform program, approved the second tranche of a $3.4 billion loan on January 9, 2017. A detailed report on the program's performance was released on January 21, 2017, highlighting key issues, including the National Bank Establishment Proclamation.

The IMF report noted that while the proclamation improves the National Bank's operations, it falls short in ensuring institutional independence and addressing administrative gaps. Critical omissions include the lack of provisions preventing sitting government officials, including ministers, from serving on the National Bank's board.

Additionally, the report highlighted the absence of measures limiting the dominance of non-executive government officials on the board and the lack of a double veto procedure for appointing the Governor, Deputy Governors, and board members.

The IMF engaged with Ethiopian government officials, who acknowledged that the level of independence proposed for the National Bank is limited compared to global best practices but represents significant progress given Ethiopia's context and previous legal frameworks.

However, the IMF reiterated the need to address these gaps, particularly those affecting the National Bank's independence, as outlined in its recent report.

Currently, Ethiopia's National Bank board includes Chief Economic Advisor to the Prime Minister Girma Birru (Ambassador), Governor Mamo Mihretu, Planning and Development Minister Fitsum Asfaw (Dr.), Finance Minister Eyob Tekalign (Dr.), Deputy Governor Fekadu Degene, Trade and Integration Minister Yasmin Wohabrebi, and Senior Advisor GebreYesus Gonten as Secretary.

In response to the IMF's concerns, Managing Director Kristalina Georgieva stated during a press briefing last week, ‹‹I am pleased to confirm that all stakeholders are generally committed to ensuring the National Bank's institutional independence. The independence of the bank is crucial because monetary policy decisions must be based on evidence, not political negotiations.››

She added, ‹‹Globally, inflation has risen over the past two years due to the COVID-19 pandemic, supply chain disruptions, and the Russia-Ukraine war. Central banks must have the capacity to implement strong measures, such as raising interest rates, to curb inflation.››

Georgieva emphasized, ‹‹Inflation is a tax on the poor. If the Central Bank does not base its decisions solely on data, it will not benefit the country or the economy. I have heard that there is strong readiness to ensure the administrative independence of Ethiopia's National Bank. We will also support capacity building to strengthen the bank's modern monetary policy framework.››