Issue 241: Loosening the Grip

 Loosening the Grip

The Signal

An IMF staff team was recently reported to be in Addis Ababa for discussions expected to lead to the fifth review of Ethiopia's four-year, USD 3.4 billion Extended Credit Facility arrangement, the program that has underpinned the country's macroeconomic reform agenda since July 2024. The visit is the most consequential periodic test of whether the National Bank of Ethiopia is delivering on the FX market liberalization commitments at the heart of that program.

Against this backdrop, the NBE issued two directives in the final week of May that carry direct bearing on how that test is likely to be assessed. The first, FXD/05/2026, effective 25 May, amends the foundational FX Directive FXD/01/2024 by delegating to commercial banks the authority to approve letters of credit on acceptance, cash against documents, and pre-shipment orders, all without prior NBE approval, for institutions holding foreign currency or retention accounts.

The second, FVD/01/2026, effective 29 May, establishes a standalone legal framework governing Franco Valuta transaction: imports financed entirely from foreign exchange outside the domestic banking system, requiring no drawdown on national reserves. Together, they represent the NBE's most substantive package of FX administration changes since the July 2024 float. Whether they signal genuine liberalization or managed optics in light of the review might be the right question to be asking.

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