Ethiopia's Economic Reforms Hits Pause as Central Bank's Governor Resigns

In the heart of Africa's economic powerhouse, a seismic shift has just rocked the corridors of power: Ethiopia's Central Bank Governor Mamo Mihretu, the mastermind behind the nation's boldest financial overhauls in decades, has abruptly stepped down, casting a shadow of doubt over the country's fragile path to stability and growth.Mamo Mihretu's resignation, announced on his official social media account, feels like the end of an era for Ethiopia's ambitious economic renaissance. After seven years in various high-stakes government roles, the governor cited a desire to chase new passions and confront fresh challenges. "The time has come for me to leave government," he wrote, reflecting on his journey as both an honor and a rewarding chapter. Appointed in early 2023, Mihretu wasn't just a banker; he was the visionary force steering Ethiopia through turbulent waters, transforming a once-insular economy into one daring to embrace global markets.To understand the gravity of his departure, consider Mihretu's backstory.

Before taking the helm at the National Bank of Ethiopia (NBE), he founded and led the Ethiopia Investment Holding, the nation's sovereign wealth fund—a role that positioned him at the epicenter of strategic investments. He was also a core member of the team crafting the Home-Grown Economic Reform agenda under Prime Minister Abiy Ahmed. This initiative marked Ethiopia's first major pivot away from state-controlled socialism toward a more open, market-driven model. Mihretu often described his leadership as guiding a "vulnerable institution" through the country's most transformative reforms in half a century, crediting his team's unwavering dedication for the successes.Under his watch, Mihretu rolled out groundbreaking changes that reshaped Ethiopia's financial landscape. He pioneered a modern monetary policy framework, ditching outdated controls for tools that respond dynamically to economic pressures.

A highlight was the transition to a market-based exchange rate, allowing the Ethiopian birr to float freely—a radical move for a nation long reliant on fixed rates. This wasn't without pain; the birr's devaluation sparked immediate backlash as import costs soared, inflating everyday prices and squeezing households already battered by double-digit inflation.Yet, the wins were undeniable. Mihretu championed legislation boosting the NBE's independence, shielding it from political whims and fostering credible policymaking. He opened the doors to foreign banks, injecting competition and expertise into a stagnant sector. Digital inclusion got a massive boost, with mobile and online payments exploding more than tenfold, empowering millions in rural areas to join the financial fold. Financial assets ballooned to over 5 trillion birr—about $34.9 billion—fueling broader economic activity. On the international front, his diplomacy unlocked $10.5 billion in vital funding from heavyweights like the International Monetary Fund (IMF) and World Bank. This included a landmark $3.6 billion IMF Extended Loan Facility in mid-2024, tied to those very reforms Mihretu championed. Foreign reserves tripled in a single year, a lifeline against currency crises, while inflation dipped to its lowest in seven years. Even in June, the NBE auctioned $50 million at around 135 birr per dollar to steady the exchange rate amid mounting pressures.Ethiopia's economy, Africa's second-largest by population, is at a crossroads.

Long shielded by import restrictions and a fixed currency, it's now grappling with the realities of liberalization: a volatile birr, persistent inflation hovering in the double digits, and the nascent stirrings of a securities market. These reforms, launched in July 2024 to meet IMF strings, have been a double-edged sword—accelerating growth potential but igniting public discontent over rising living costs. Mihretu's exit arrives at this precarious juncture, injecting uncertainty into monetary policy's trajectory. Will his successor double down on these market-oriented shifts, or pull back amid social strains? The NBE's newfound autonomy could be tested, and the momentum toward financial liberalization might falter without his steady hand.For businesses eyeing Ethiopia's 120 million-strong market, this is a moment of recalibration. The reforms Mihretu drove promised easier access for foreign investors, from agribusiness to tech, but his departure raises red flags about policy continuity. Local entrepreneurs, benefiting from digital finance booms, now wonder if the progress will stall. Globally, lenders like the IMF will scrutinize the transition closely, as Ethiopia's debt woes—exacerbated by past conflicts and droughts—demand unwavering reform commitment.In simple terms, Mihretu's tenure was about dragging Ethiopia kicking and screaming into the modern economy: less government grip, more market freedom, and tech-savvy tools for all. His reforms stabilized reserves and curbed inflation but unleashed short-term pains like higher prices. The big question? Can Ethiopia sustain this momentum without its architect, or will old habits creep back, derailing the dream of a prosperous, inclusive economy?: Reforms Are Fragile: Economic overhauls like Ethiopia's show that bold changes bring growth but also hardship—businesses should plan for volatility and diversify risks in emerging markets. Leadership Matters: A single visionary can steer a nation; watch for the next governor's appointment, as it could signal continuity or reversal in policy direction. Digital Wins for All: The surge in digital payments highlights untapped potential—investors and individuals alike should prioritize financial literacy and tech adoption to thrive. Global Ties Pay Off: Securing IMF deals underscores the value of international partnerships; African nations eyeing reforms should build strong diplomatic bridges early.

As Ethiopia navigates this leadership vacuum, the stakes couldn't be higher. Mihretu's legacy is a blueprint for ambition, but its endurance depends on collective resolve. The Horn of Africa's giant is pivoting—will it soar or stumble?