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, a new survey by the National Bank of Ethiopia (NBE) has shown.
The survey, which gathered input from 42 respondents including bank executives, academics and advisory firms, ranked foreign exchange (FX) risk as the top concern, cited by 26.2 percent of participants. Inflation followed closely at 23.8 percent, reflecting persistent worries about rising prices and the weakening of the birr.
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, with 26.2 percent pointing to it as their primary concern.
The findings highlight a disconnect between recent policy reforms and market confidence. Since 2024, Ethiopia has introduced a market-based exchange rate regime, alongside FX auctions and the liberalisation of currency bureaux.
However, stakeholders continue to view currency movements as a source of uncertainty rather than stability.
Inflation remains another major pressure point, driven by both 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 suggests that price pressures remain entrenched, with implications for purchasing power and financial resilience.
Beyond FX and inflation risks, the survey pointed to geopolitical tensions and external debt pressures as additional concerns. Respondents warned that global instability and tighter access to foreign financing could exacerbate inflationary trends and place further strain on the financial system.
Credit and liquidity risks were also flagged as closely interconnected, with stakeholders cautioning that stress in one segment could quickly spill over into another, amplifying systemic vulnerabilities.
Technology-related risks, including cyberattacks and digital fraud, were ranked as the least immediate concern. However, the report noted that this may be due to limited awareness rather than low exposure, particularly as the expansion of digital financial services is expected to increase operational risks over time.
Overall, the survey suggests that while macroeconomic indicators point to gradual stabilisation, key vulnerabilities, especially 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 buffers to cushion potential 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.
