The establishment of a monetary policy committee within the National Bank of Ethiopia (NBE) was added to the proposed re-establishment of the regulator. The committee will consist of seven members, including the governor and vice governor, tasked with continuously assessing the economy and advising on monetary decisions, including interest rates.

Ethiopia’s financial sector is undergoing a pivotal transformation, driven by a series of sweeping legislative reforms to modernise the country’s banking infrastructure and bring it in line with international standards. Central to these reforms are the proposed re-establishment of the National Bank of Ethiopia (central bank) and the revision of the banking business law, both of which were recently tabled before Parliament’s Standing Committee for Planning, Budget & Finance. These changes are set to enhance macroeconomic stability and position Ethiopia’s financial system for long-term growth.

Mamo Mihretu, the 10th governor, explained that the reforms introduced over the past year mark a decisive shift in addressing longstanding macroeconomic imbalances. The re-establishment under a new proclamation is designed to grant the central bank greater autonomy and fortify its ability to manage the country’s monetary policy and foreign exchange regulation.

Mamo said the current legal framework which has remained unchanged for over 16 years, is no longer in sync with the evolving financial, economic, and political landscape.

“It’ll restore institutional, organisational and financial credibility while improving transparency and accountability,” he said.

The new proclamation seeks to curtail the executive branch’s authority over the Central Bank, empowering it to take a leading role in the country’s monetary policy. Among the key provisions is a cap on the government’s ability to directly finance itself through the central bank, limiting such assistance to no more than 15pc of the average annual government revenue of the last three years, and exclusively through temporary overdrafts.

Despite widespread support for the bill’s intent, some MPs raised concerns about the expanded role, particularly its investment functions, which they felt were not sufficiently clear. Mamo defended the Central Bank’s investment in institutions like EthSwitch and the National Currency Printing House, asserting that these align with the central bank’s mandate to safeguard financial stability.

Another noteworthy feature of the draft is the establishment of a financial stability committee, tasked with overseeing bailouts in the event of a financial crisis. Critics have questioned whether such a responsibility should be shared with other government ministries. Mamo cited the example of the U.S. financial system’s recovery from the 2008 crisis, which the Federal Reserve and the Treasury Department primarily drove.

“The central bank and Finance Ministry are key to the success of such interventions,” he said.

The push for reform is not new. For nearly 25 years, attempts to shift the financial system toward market-based principles have stumbled, due to a lack of sustained institutional follow-through and shifting government priorities.

Experts say the previous framework also struggled with issues of autonomy, as the central bank was influenced by political considerations. Under the new legal structure, regulators expect that while the central bank will remain accountable to the Prime Minister, it will have full statutory independence over monetary policy and foreign exchange matters.

Seven months ago, the central bank unveiled a three-year strategic plan to restore fiscal and monetary stability. The plan, coupled with the proposed changes to the central bank’s legal framework, signals a new direction which has been operating in its current form for 62 years.

“We are transitioning to an interest-based policy,” Mamo told Fortune. “This is a key step in stabilising our economy.”

Another point of contention during the discussions was the procurement process, which some MPs argued overlaps with the recently ratified procurement law. However, central bank executives, including Mesfin Ayele, the bank’s legal director, clarified that the Ministry of Finance had approved their approach in a letter, validating the procurement strategy.