Central Bank Makes Policy in Catch-Up Mode

Feb 21 , 2026
By Abreham Tesfaye

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Over the past few years, the National Bank of Ethiopia (NBE) has issued a steady stream of directives in quick succession, reshaping banking operations, foreign exchange rules, capital requirements and market conduct. On paper, the agenda claims to adopt international standards, liberalise the forex regime, strengthen supervision and modernise a long-controlled financial system. In practice, the economic payoff remains unclear and largely unproven.

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Over the past few years, the National Bank of Ethiopia (NBE) has issued a steady stream of directives, in quick succession, reshaping banking operations, foreign exchange rules, capital requirements and market conduct.

On paper, the agenda looks ambitious. It claims to adopt international standards, liberalise the forex regime, strengthen supervision, and modernise a long-controlled financial system. In practice, the economic payoff remains unclear and largely unproven.

The latest round of monetary policy reform feels familiar to many observers. Each new directive arrives with the language of urgency and inevitability, billed as a bold correction to years of distortion. Yet for an economy battered by inflation, forex shortages, and falling private-sector confidence, these measures look less like decisive leadership and more like belated admissions that earlier policies failed to deliver.

The problem is not the reform itself. The economy needs financial policy reforms. It is the timing, sequencing and credibility that is the source of the troubles. Many of the decisions now presented as breakthroughs are reforms that should have been in place years ago, before distortions hardened into crises.

Liberalising foreign exchange after years of rationing did not create dollars. It simply exposed how deep the shortage had become. Tightening banking regulations after inflation eroded balance sheets did not restore confidence. It may instead raise compliance costs for institutions, banks and borrowers already struggling to lend productively.

Supporters of the agenda argue that impact takes time and patience. That is true. But patience is a luxury for businesses facing daily liquidity constraints and households watching their purchasing power eroded day after day. For them, the question is not whether reforms are theoretically sound, but whether they are working now in the real economy. So far, the evidence is flimsy. The cost of living remains stubbornly high, even though official government data on inflation says otherwise. Credit to productive sectors is constrained. Access to foreign currency still determines who survives and who exits the market.

What makes this more troubling is the policy's reactive nature. Many directives seem to respond to pressures that have already spun out of control rather than anticipating them. Interest rate moves come after inflation has surged. Forex measures follow years of widening parallel market premiums. Prudential rules are tightened once risks are already embedded in balance sheets. The pattern is of an institution chasing events instead of shaping them.

There is also reform by proclamation. Frequent directives may signal activism, but they also create uncertainty and doubt. Businesses struggle to plan when rules change faster than contracts can be written. Banks hesitate to innovate when regulatory interpretations shift midstream. Investors, domestic and foreign, read inconsistency as risk. Reform fatigue follows, not because change is unwelcome, but because it feels endless and unsettled for many market participants.

Equally worrying is the growing gap between official narratives and daily economic reality. Policymakers talk about meeting global standards, yet standards alone do not generate growth. They point to liberalisation, yet markets cannot function when trust is weak and institutions overstretched. They speak of resilience, while ordinary businesses quietly downsize or close. Reform becomes a performance, measured by the number of directives issued rather than by outcomes achieved on the ground.

None of this argues for a reversal of course. But it does argue for a serious rethink, with fewer directives and better timing. Policymakers need to have more data-driven evaluations and less rhetorical celebration. Above all, a clear recognition that reform delayed is reform diminished. When policies arrive after the damage is done, they may stabilise the wreckage, but they rarely unlock growth or renewed confidence.

The economy does not need another wave of announcements to show that change is happening. It needs evidence that change is working. Until that shows up plainly in prices, credit access and confidence, the financial policy reform story will remain what it increasingly appears to be. It is too little, too late and far too uncertain for an economy that cannot afford long experiments.

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PUBLISHED ON Feb 21,2026 [ VOL 26 , NO 1347]

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