Addis Ababa – In a significant shift in monetary policy, the Monetary Policy Committee (MPC) of the National Bank of Ethiopia (NBE) has decided to lift the directive that required all commercial banks to purchase long-term government bonds. The decision was announced following the MPC’s third meeting of the fiscal year on June 23, 2017 (Ethiopian Calendar).
The directive in question, labeled MFAD/TRBO/001/2022, was introduced in January 2022 as part of the government’s strategy to finance its budget deficit through domestic borrowing. Under this regulation, commercial banks were compelled to allocate 5 percent of their annual loan disbursements to the purchase of five-year treasury bonds. According to the Ministry of Finance’s public debt records, banks have collectively invested 94 billion birr in these bonds between the directive’s inception and June 30, 2024.
The National Bank’s official statement explained that the committee’s decision to rescind this mandatory purchase requirement reflects evolving fiscal conditions in the country. Specifically, it cited a substantial improvement in the government’s revenue collection capacity and increased reliance on both external financing and market-based domestic borrowing mechanisms. The committee argued these developments reduce the need for enforced bank participation in funding the budget deficit through long-term bond purchases.
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