Sovereign Fund Dips Into T-Bills Stirring Markets Long Left Dormant

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Ethiopian Investment Holdings (EIH) has stepped into the Treasury Bill (T-bill) market for the first time, investing nearly seven billion Birr, marking a notable shift for commercial entities in the public debt arena.

Executives of the sovereign fund believe the investment, disclosed during a finance forum held last week at the Science Museum, on Menelik II Avenue, signals a deliberate effort to boost private sector confidence in government securities, historically dominated by banks and pension funds.

According to Central Bank Governor Mamo Mehretu, who was CEO of the sovereign fund before he assumed his current role, the economic rationale behind the strategic decision is the attractiveness of Birr-denominated assets. Average interest rates for T-bills climbed to 16.5pc this year, and all major interest benchmarks, policy and interbank rates, are now positive. The Governor argued that a policy shift toward market-based financing enabled the Central Bank to secure funding without fueling inflation, a critical measure in managing the federal budget deficit.

The National Bank of Ethiopia (NBE) recently introduced a new digital platform known as "Single-Entity Multi-Asset Central Securities Depository (CSD)", hoping to encourage broader participation in the T-bill market. The platform is designed to facilitate easier access to government securities for individuals and retail investors, including insurance companies. Governor Mamo described the CSD as "an essential infrastructure for managing public and private debt and equity instruments, enhancing transparency and efficiency in securities auctions."

The CSD's implementation is part of the Administration's broader economic policy reform agenda, which targets increasing market liquidity and improving investor confidence. Its advanced, digital post-trade system securely records securities ownership, reducing settlement risks and increasing the market's attractiveness.

Rediet Getachew, EIH's chief financial officer (CFO), praised the company's groundbreaking investment for its dual purpose.

"We ought to be the icebreaker," he said, stating the need to cultivate trust among private investors on T-bills. Rediet called the investment "smart," balancing EIH's diverse portfolio of high-risk ventures with safer and low-risk government securities. He also noted its potential to aid the Central Bank in managing inflation and the Finance Minister in managing budget deficits effectively.

EIH's investment in T-bills was financed through dividends collected from its nearly 30 state-owned subsidiaries, including the Ethiopian Airlines Group and Ethio telecom. These companies, overseen by EIH, collectively control assets valued at over 150 billion Br. EIH, established in 2022 with a registered capital of 100 billion Br, whose board of directors is chaired by the Prime Minister, is evolving as a crucial player in the economy. According to Rediet, the temporary gap between collecting dividends from subsidiaries and their scheduled transfer to the Ministry of Finance provided an opportune moment for short-term investments in T-bills.

Although Rediet declined to disclose the specific interest rate on EIH’s T-bill investment, he indicated the company did not pursue the highest possible yield. Instead, he confirmed that EIH plans further investments and encourages its subsidiaries to participate, too.

Historically, the T-bill market has struggled to attract private sector interest. Until recently, banks and pension funds were compelled to purchase T-bills through mandatory directives. Pension funds alone accounted for approximately 90pc of their annual inflows in low-risk T-bills, yielding between 12pc and 15pc. Between July and March of the current fiscal year, pension contributions reached 58.6 billion Br, with total T-bill purchases from pension funds amounting to 157.8 billion Br.

However, past attempts to stimulate broader private investment in T-bills were unsuccessful. In 2021, the government’s auction was designed to reduce Central Bank direct lending and address a 123 billion Br budget deficit. Bidding totalled only eight billion Birr, far short of its 30 billion Birr goal. The persistent apathy among private financial institutions toward T-bills has been exacerbated by years of negative interest rates. As recently as January 2025, major benchmark rates were at zero, signalling low incentive for commercial investment.

The insurance industry remains particularly cautious about T-bills. According to an insurance firm CEO, who asked for anonymity, banks' time-locked deposits offer more appealing returns, with rates occasionally reaching 23pc, much higher than the 16pc available from T-bills. He urged the Central Bank to make the T-bill more attractive.

"Insurance firms could substantially contribute to the market beyond their current reliance on time deposits," he told Fortune.

Despite such reservations, Governor Mamo views EIH’s initiative as an encouraging development. He argued that broader participation in T-bills would support the Central Bank’s broader objectives of curbing inflation and lowering the policy interest rate. Mamo stated that the inflation rate has decreased substantially, currently at 13pc, with projections for 10pc next year, contingent on continued fiscal discipline.

“Inflation is the lowest for the first time in decades,” said Mamo.

However, the IMF projected the consumer price index (CPI) to remain at 21pc this year.

Mamo attributed previous inflationary pressures to the Central Bank's direct financing of government fiscal deficits. Last year, the practice involved deficit financing of approximately 113 billion Br. This year, the Central Bank notably refrained from such financing, signalling a shift in policy. Instead, the NBE employed liquidity measures, injecting forex and absorbing excess Birr, mopping up around 140 billion Br from the economy.

Complementing these steps, Governor Mamo outlined substantial economic improvements following recent reforms. The Governor disclosed upcoming policy reforms, including removing bank credit caps by September and allowing foreign banks to enter in a phased fashion by the end of 2025. A draft directive on foreign bank entry is expected, initiating a new phase of banking competition.

Investment advisor Mered B. Fikireyohannes, from Pragma Investment Advisory, welcomed EIH's foray into T-bills. He described the move as beneficial for enhancing market liquidity and advocated routing future T-bill auctions through brokers to strengthen the emerging capital market. Mered believes increased commission-based transactions will stimulate activity, further stabilising and deepening financial markets.

He also urged the Ministry of Finance to consider issuing longer-term government instruments, such as five- to 25-year treasury notes and bonds, which would provide yields superior to those currently offered by short-term T-bills and establish yield curves.

"Such instruments could become critical benchmarks for long-term lending, helping banks set interest rates based on market dynamics," Mered told Fortune.

Currently, pension funds dominate T-bill purchases due to mandatory investment guidelines. Mered criticised this restrictive arrangement, arguing it limits returns for pensioners, some of whom receive as little as 3,000 Br a month. Allowing pension funds greater flexibility to pursue higher-yield assets, he argued, would substantially benefit pensioners, offering improved long-term returns and financial stability.

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