Ethiopia: Abiy’s pick for bank governor faces spiralling inflation and shrinking reserves

Abiy’s office on Friday 20 January announced Mamo’s appointment to the helm of the National Bank of Ethiopia. It came as part of a major shake-up at the heart of the federal government, which has seen new ministers take up the portfolios for trade, transport and mines, and the resignation of the supreme court’s top judge.

Mamo is close to the prime minister, having served as his trade advisor from 2018 to 2022. He is one of several young, high-flying technocrats with international experience whom Abiy appointed to champion his liberalisation programme, which is aimed at loosening the economic grip of the state and attracting private investment.

Mamo initially trained as a lawyer at the University of Addis Ababa and advised Ethiopia’s ministry of trade on accession to the World Trade Organisation.

Later, he earned a Masters in Public Administration from the Harvard Kennedy School of Government and spent close to eight years with the World Bank in Nairobi, where he led the organisation’s work on trade logistics, business regulation and taxation in Ethiopia.

There are few things the central bank governor can do to generate more revenue domestically since Ethiopia is a low income country

In February 2022, Mamo was appointed the first CEO of Ethiopia Investment Holdings, the country’s new sovereign wealth fund, which seeks foreign investment for major state-owned enterprises worth $150bn, including Ethio Telecom and Ethiopian Airlines.

Mamo did not respond to an interview request for this article. However, last year, he told The Africa Report he was confident Ethiopia’s economy could lure back foreign investors put off by the bloody civil war with Tigray, which broke out in November 2020.

“The focus should be the economy and Ethiopia is a land with countless opportunities for local and foreign investors…we will give them security,” Mamo said.

Inflation challenge

He will have his work cut out for him as governor of the National of Ethiopia. His main challenges will be to bring down inflation – currently running at over 30% – and to tackle a foreign currency crisis that has left Ethiopia enough reserves to cover just one month of imports.

This will be a very critical and difficult task that can only be addressed with the help of international donors

The country is also struggling with hefty foreign debt repayments and faces a reconstruction bill of $26bn following two years of civil war in the north.

Mamo’s appointment comes as Ethiopia seeks an IMF programme, prepares to re-launch its national Homegrown Economic Reform programme and tries to normalise relations with international donors, such as the US and the EU after the signing of a peace deal on 2 November.

Liberalising monetary policy

An IMF programme would likely require liberalisation of Ethiopia’s monetary policy, especially the lifting of foreign currency restrictions, which Mamo would play a key role in implementing as national bank governor.

Patrick Heinisch, an economist at Helaba, says Mamo’s dual objectives of reforming the foreign exchange system and addressing inflation are “contradictory” and will require engagement from donors who are yet to reinstate budgetary support cut during the war.

“If you liberalise foreign exchange, this will lower the value of the birr and imported consumer goods will become more expensive, which will increase inflation,” says Heinisch. “This will be a very critical and difficult task that can only be addressed with the help of international donors, because it needs US dollars. Without them, it’s impossible to reduce inflation and allow more liberalisation of the exchange rate.”

Last week, deputy finance minister Eyob Tekalign was forced to deny rumours Ethiopia would devalue the birr, which currently trades at 53.43 to the dollar.

However, Heinisch believes the government could still forge ahead with a gradual depreciation of the national currency as part of a broader package of macro-economic reforms.

“There are few things the central bank governor can do to generate more revenue domestically since Ethiopia is a low income country [with a limited tax base],” said Heinisch. “I believe he and the prime minister will coordinate closely to attract more funding from abroad.”

Some have questioned Mamo’s appointment, pointing to his lack of senior management experience and his closeness to the prime minister, asking whether he will act with the independence expected of a central bank governor.