After the Float: Capital Markets, Foreign Banks, and the New Architecture

The most ambitious overhaul since 1945

Article 21 described the moment of the float and the immediate consequences. This article describes the architecture being built around it — the institutional changes that, together, constitute the most ambitious overhaul of Ethiopian monetary infrastructure since the 1945 founding of the modern birr. The question this article asks is the question that defines the post-2024 period: are these changes a regime change, or a half-reform that the next political shock will reveal as cosmetic?

The series’s honest answer is that, in mid-2026, it is too early to know. The reforms are real. They are also incomplete, dependent on continued political commitment, vulnerable to the next major shock, and constrained by the political economy of the constituencies who benefited from the previous regime. The next decade will determine whether the post-2024 architecture proves durable, or whether it joins the long line of partial reforms — 1945, 1963, 1992 — that this series has been tracking as moments when the disease was partially treated and then allowed to return. The article describes what is being built, what remains to be built, and what the open questions are.

The Ethiopian Securities Exchange

The Ethiopian Securities Exchange (ESX) was launched in 2024 as Ethiopia’s first formal capital-market institution.¹ The launch is the most consequential single piece of new financial infrastructure created in the post-2018 period, and its eventual scale will determine whether Ethiopia develops a domestic capital market deep enough to displace some of the functions that the financial-repression machinery had previously performed.

The case for the ESX is direct. A country with a deep domestic bond market can fund infrastructure investment in its own currency, rather than borrowing in dollars and exposing itself to the currency-risk problem article 17 examined. A country with an equity market can mobilise domestic savings into productive equity investment, rather than relying on bank-intermediated credit that the financial-repression machinery distorted. A country with a corporate-bond market gives its banking system an alternative to direct lending, with the price-discovery and risk-pricing functions a market provides. The absence of these institutions has been a structural weakness of the Ethiopian financial system throughout the period this series covers.

The build-out of the ESX is, however, only in its early stages. The initial listings have been modest. The legal and regulatory infrastructure (Capital Market Authority licensing, custody arrangements, settlement systems) is being put in place but not yet fully operational. The Capital Market Authority’s approval of share registrations — Zemen Bank in 2025, Prime Capital in early 2026 — represents progress, but the scale of activity remains far below what a deep market would require.²

The honest assessment is that the ESX is a necessary but insufficient piece of the new architecture. Its eventual success depends on factors the launch itself cannot control: continued macroeconomic stability that gives investors confidence in birr-denominated assets, regulatory predictability that gives issuers confidence in the listing framework, and a critical mass of issuance volumes sufficient to attract institutional participation. Each of these depends on continued reform discipline. None is guaranteed.

The opening to foreign banks

The Banking Business Proclamation of 2024, and subsequent NBE directives in 2025–26, created a framework for licensing foreign banks to operate in Ethiopia.³ The opening represents a major break with the EPRDF-era policy of preserving the domestic banking sector as a closed system dominated by state institutions.

The case for foreign-bank entry, in the post-float framing, is several-fold. Foreign banks bring capital — both equity and access to international funding — that the domestic Ethiopian banking system has been unable to mobilise at scale. They bring expertise in modern banking practice, particularly in trade finance, corporate lending, and risk management, that the Ethiopian system has been slow to develop. They provide competitive pressure on the dominant state institutions (the CBE in particular), forcing efficiency improvements that the previous closed-system arrangement did not require. They create the institutional infrastructure for Ethiopia’s integration into international financial markets in ways that the previous arrangement foreclosed.

The risks are also real. Foreign banks, motivated by profit and answerable to their home-country regulators, may not prioritise the development of services for underserved Ethiopian populations. They may engage in cream-skimming — targeting the most profitable urban, corporate customer segments while leaving the difficult-to-serve segments to the state banks. They may engage in capital flight during stress periods, accelerating the kind of macroeconomic deterioration the previous closed-system arrangement was designed (partly) to prevent.

The Ethiopian government’s framework, articulated in the 2024–25 directives, attempts to balance these considerations through specific licensing requirements (minimum capital, local-presence requirements, fit-and-proper tests for management). Whether the balance is correct, and whether the foreign banks that enter under the framework will deliver the predicted benefits while avoiding the predicted risks, will not be clear for several years. The first licenses, expected in 2026–27, will be the first test.

The NBE legal framework

The most important reform — and the one whose durability is least certain — is the reform of the NBE legal framework itself. The new NBE law, passed in 2024–25, includes provisions designed to strengthen the bank’s operational autonomy and to formalise the prohibition on monetary financing of government deficits.⁴

The provisions, as reported by the IMF in its second-review press release, include strengthened arrangements around the appointment and removal of NBE governors, clearer separation of monetary and fiscal authorities, and explicit constraints on NBE lending to the federal government. The IMF’s assessment was that “the new law governing the NBE represents a significant advance on the existing legal framework in most respects” while flagging “remaining gaps with respect to governance and autonomy” that the ongoing reform programme commits to addressing.⁵

The “remaining gaps” deserve attention because they are precisely the gaps the next political stress test will reveal. The IMF Article IV consultation of July 2025 identified specific institutional issues — the filling of vacant NBE Board positions with “well qualified candidates,” the implementation of the reformed legal framework in practice, the separation of NBE governance from broader executive influence — that, if not resolved, would leave the framework formally improved but operationally compromised.⁶

The Sowellian point is direct. A central-bank statute that formally prohibits monetary financing of deficits but operationally leaves the central bank subject to executive direction is, in the relevant sense, no better than a statute that openly permits the financing. The institutional infrastructure has to do the work the statute pretends it is doing; if it does not, the statute is form without substance. The question for the post-2024 NBE is whether the institutional infrastructure is being put in place at the same pace as the formal-statutory reform. The IMF’s assessment, as of mid-2026, is that the formal-statutory reform is more advanced than the institutional reform — which means the framework is more vulnerable to political pressure than it appears on paper.

The interest-rate-based monetary policy framework

The NBE’s transition to an interest-rate-based monetary policy framework is, in technical terms, a substantial change.⁷ Under the previous regime, monetary policy operated principally through credit-allocation directives (such as the 27 percent rule), exchange-rate management, and direct intervention in the foreign-currency market. The new framework treats the policy rate as the principal monetary-policy instrument, with the NBE conducting open-market operations to manage liquidity and signal policy stance through rate decisions.

The case for the change is the standard central-banking case. Interest-rate-based monetary policy provides clearer signals to economic actors, allows market-based allocation of credit while the central bank manages aggregate conditions, and integrates Ethiopian monetary policy with the international policy frameworks that the post-float regime has committed to. The change is, in this sense, part of the broader normalisation of Ethiopian monetary infrastructure.

The implementation challenges, however, are substantial. An interest-rate-based framework requires a banking system that responds to the policy rate — that is, a banking system in which the relationship between policy rates and lending rates is meaningful, mediated by competitive pricing of credit. The Ethiopian banking system, dominated by the CBE and operating with substantial state-bank influence, does not yet have this property fully. The framework is being put in place ahead of the conditions that will make it fully operational, with the expectation that the institutional development will catch up over time.

Whether the catch-up will happen, or whether the framework will end up as a formal architecture overlaid on a banking system that does not actually respond to it, is the open question. The early evidence — the 2025–26 monetary-policy decisions, the responses of banking-system lending rates to policy moves — has been mixed. The framework is taking shape but is not yet fully effective.

What is not (yet) reformed

The list of unfinished business is worth setting out clearly because it defines what the remaining reform programme has to deliver.

The land regime. As article 13 examined, the constitutional commitment to state ownership of land has not been reformed. The credit-market constraints that the land regime imposes — the absence of pledgeable rural land collateral, the leasehold restrictions on urban land — remain in place. The Ethiopian Capital Market Authority’s 2026 changes have introduced provisions allowing foreign property purchases above specific value thresholds, but these are marginal modifications rather than systemic reform.⁸

The state-bank dominance. The CBE remains the dominant institution in the Ethiopian banking system. Its commercialisation has been announced, repeatedly, as a target, but no specific timeline or methodology has been committed to. The IMF’s continuing attention to CBE’s financial position in the ECF reviews reflects the recognition that the state bank’s structure is not yet aligned with the post-float architecture.

The state-owned enterprise sector. The Ethiopian Investment Holdings continues to consolidate state commercial assets. Privatisation of individual SOEs has been slow. Ethio Telecom’s privatisation, announced years ago, remains incomplete. Ethiopian Airlines, the country’s most successful SOE, remains fully state-owned without an announced privatisation timeline. The political economy of SOE reform is the political economy of the constituencies these enterprises serve, and that political economy has not changed as dramatically as the reform rhetoric implies.

The fiscal architecture. The Ethiopian tax base remains narrow. Tax revenue as a share of GDP is below regional averages and substantially below the level required to fund the expenditure ambitions the political system contemplates. The IMF programme commits to revenue-mobilisation reforms, including VAT and excise tax updates, but the political-economy resistance to substantial broadening of the tax base is real. As long as the tax base is narrow, the temptation to use the central bank to fill the gap between revenue and expenditure will remain — even if the formal prohibition on central-bank financing is maintained.

The bondholder restructuring

A specific piece of post-float business that remains incomplete as of mid-2026 is the restructuring of the defaulted $1 billion Eurobond. Article 17 traced the process: the December 2023 default, the various proposals exchanged through 2024–25, the collapse of bondholder talks in October 2025, the preliminary deal in January 2026 that was scrapped, and the renewed agreement of 29 June 2026 for an $880 million bond at 6.15 percent interest, with annual installments through 2029.⁹

Whether the June 2026 agreement holds is, as the article goes to publication, not yet certain. Past iterations have agreed only to break down. The bondholders’ formal acceptance of the latest terms is a necessary step. The Ethiopian government’s parliamentary ratification of the terms is another. And the satisfaction of the comparability-of-treatment principle vis-à-vis the bilateral creditors — particularly China — is a third. Each of these steps could derail the agreement.

If the agreement holds, Ethiopia will have completed the formal restructuring of its single largest commercial debt obligation. The cost will have been substantial: the 12 percent haircut on principal, the missed coupon payments paid alongside, the consent fee, and (less tangibly) the reputational cost of being the first African Eurobond defaulter of the post-Eurobond era. The benefit will be the normalisation of Ethiopia’s debt situation, which will, in time, allow the country to return to international capital markets on terms more favourable than those available to a defaulted issuer.

The fragile equilibrium

The post-2024 architecture is, in mid-2026, in a fragile equilibrium. The reform programme is advancing on multiple fronts. The macroeconomic indicators are mixed but, in some dimensions, improving. Inflation has been brought into single digits briefly. The parallel premium has narrowed substantially. Reserves have been rebuilt to more sustainable levels. The IMF programme is on track. The Common Framework debt restructuring is, after delays, approaching completion.

At the same time, the May 2026 inflation re-acceleration, the continuing security challenges in Amhara and Oromia, the unresolved Eritrea relationship, the ongoing political tensions within the Prosperity Party, and the uncertainty about the next Ethiopian elections all create vulnerabilities that the architecture has not yet been tested against. The next shock — a new war, a new commodity price spike, a new political crisis — will be the test.

The series’s editorial position, developed in the next several articles, is that the post-2024 reforms are necessary but not sufficient. They are the first serious attempt in fifty years to address the structural monetary disorder the series has been tracking. They are not yet the complete reform that would prevent the disease from recurring under the next regime. Articles 25, 27, and 28 examine what the additional reforms would require and what the political conditions for them would be.

The next article steps back from the architecture and asks the harder question of cost: who, across all the inflation, devaluation, and disorder this series has documented, has actually paid?

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Footnotes

1. Ethiopian Capital Market Authority, founding documents and 2024 launch announcements; IMF Country Report 25/188 (July 2025). ↩

2. Capital Market Ethiopia, “Ethiopian Capital Market Authority Approved Registration of Fifteen Million ZEMEN BANK S.C. Shares,” 2025; Prime Capital S.C. registration, 2026. ↩

3. Banking Business Proclamation, 2024; NBE Directives on foreign-bank licensing, 2025–26. ↩

4. NBE law revision, 2024–25; IMF Press Release 25/006 (January 2025). ↩

5. IMF Press Release 25/006 (January 2025): “the new law governing the NBE represents a significant advance on the existing legal framework in most respects.” ↩

6. IMF Press Release 25/234 (July 2025), discussion of remaining institutional gaps. ↩

7. IMF Country Report 25/188 (July 2025), discussion of the transition to an interest-rate-based framework; IMF Press Release 26/009 (January 2026). ↩

8. The Reporter Ethiopia, “The National Bank Of Ethiopia’s Directive And Its Implications For Pricing And Unofficial Markets,” February 2026, on the 2026 amendments allowing foreign property purchases above $150,000. ↩

9. Ecofin Agency, “Ethiopia and Bondholders Reach New Preliminary Deal on $1 Billion Eurobond Restructuring,” June 2026. ↩