The Commercial Bank of Ethiopia (CBE) has introduced value-added tax (VAT) on various financial services as part of its efforts to comply with the government’s new tax laws and raise revenue. The VAT increase, effective from October 1, 2024, is linked to broader economic reforms impacting Ethiopia’s financial sector.
This move comes at a critical time for CBE, which is facing growing financial challenges due to the recent floating of the Ethiopian birr and its exposure to non-performing loans from state-owned enterprises (SOEs). The introduction of VAT on banking services is one of several measures the bank is adopting to strengthen its financial position and absorb the impact of currency fluctuations.
World Bank’s USD 700 Million Bailout
Central to CBE’s stabilization efforts is a USD 700 million support package from the World Bank, provided under the Financial Sector Strengthening Project (FSSP). This funding is part of a broader recapitalization and restructuring plan for the bank. The aim is to reform CBE, making it a commercially viable entity that can operate independently from government influence and compete in a more open financial market.
“The USD 700 million from the World Bank under the FSSP will be used for recapitalization and continued support of the reform and restructuring of CBE. This includes a focus on governance and risk management, ensuring CBE can operate as a sound, viable, and commercially oriented bank at arm’s length from the government,” states an IMF document published this week.
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