By Emmanuel Nduka Obisue
Exchange rate volatility and inflation have emerged as the most significant risks
to Ethiopia’s financial system, despite a series of reforms aimed at
stabilising the economy, according to a new survey by the
National Bank of Ethiopia (NBE).
The survey gathered responses from 42 participants, including bank
executives, academics and advisory firms, and found that
foreign exchange (FX) risk ranked as the top concern,
cited by 26.2 percent of respondents.
Inflation followed closely at 23.8 percent, reflecting persistent
worries about rising prices and the continued weakening of the
Ethiopian birr.
Currency Depreciation Major Concern
Respondents also identified the rapid and sustained depreciation of the
local currency as the single biggest threat to financial stability over the
next one to two years.
About 26.2 percent of participants cited currency depreciation as their
primary concern, highlighting fears that exchange rate instability could
undermine recent economic reforms.
Since 2024, Ethiopia has introduced several measures aimed at stabilising
the financial system, including a market-based exchange rate regime,
foreign exchange auctions, and the liberalisation of currency bureaux.
Despite these reforms, stakeholders continue to view currency movements
as a source of uncertainty rather than stability.
Inflationary Pressures Persist
Inflation remains another major pressure point for the Ethiopian economy,
driven by a mix of domestic demand and global economic factors.
Although inflation eased slightly to 9.7 percent in February from
9.8 percent in the previous month, the marginal decline indicates that
price pressures remain deeply entrenched.
Persistent inflation could weaken purchasing power and place additional
strain on financial resilience across the country.
Geopolitical And Debt Risks
Beyond currency and inflation concerns, respondents also pointed to
geopolitical tensions and external debt pressures as growing
threats to Ethiopia’s financial stability.
Global instability and tighter access to foreign financing could further
intensify inflationary trends and increase stress within the country’s
financial system.
The survey also highlighted credit and liquidity risks, warning that
stress in one segment of the financial system could quickly spread to
other areas, amplifying systemic vulnerabilities.
Technology Risks Growing Slowly
Technology-related risks, including cyberattacks and
digital financial fraud, were ranked as the least immediate concern
among respondents.
However, the report cautioned that this perception may reflect
limited awareness rather than low exposure, particularly as the
rapid expansion of digital financial services increases operational risks.
Call For Stronger Policy Coordination
Overall, the survey suggests that while some macroeconomic indicators point
to gradual stabilisation, major vulnerabilities — particularly around
exchange rate dynamics and inflation — remain unresolved.
Stakeholders therefore called for stronger coordination between
fiscal and monetary authorities, enhanced regulatory oversight,
and the strengthening of foreign exchange reserves to cushion
potential economic shocks.
They also emphasised the need for increased investment in
digital infrastructure and more proactive risk management,
warning that the pace of technological adoption may be
outstripping preparedness.
