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Parliament Grants Greater Autonomy to National Bank

Dec 17 , 2024

The Parliament has approved a new proclamation that strengthens the National Bank of Ethiopia's (NBE) autonomy, granting it independence over monetary policy and foreign exchange management. The proclamation allows the central bank to exercise its powers and functions and make monetary policy without external interference, limiting the executive branch's influence over the Bank. However, despite its greater statutory independence, the central bank remains accountable to the Prime Minister.

A key provision of the proclamation caps the government's access to central bank financing. The law  limits the federal government’s access to credit to temporary overdrafts of no more than 15pc of the average annual domestic revenue from the previous three fiscal years.. These overdrafts must be repaid within 12 months and cannot be rolled over.

The legislation also establishes a financial stability committee responsible for managing bailouts during financial crises.

The new law aligns with the NBE's three-year strategic plan, which the Bank expects will help ensure monetary and fiscal stability. It replaces the 2008 National Bank Establishment Proclamation and redefines the central bank’s powers and responsibilities.

One update in the new law includes raising the minimum paid-up capital of the NBE from 500 million Br to 10 billion Br, a move designed to strengthen the bank’s financial capacity.

While the proclamation increases the central bank’s autonomy, the Prime Minister still retains an influence. The Prime Minister appoints the NBE governor, vice governor, board chairperson, and six additional board members, reinforcing the executive branch’s oversight of the Bank.

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