Ethiopia's Financial Sector Overhaul — Lessons in Reform, Coordination, and Institutional Capacity

By Lily S. Beshawred, Founder, DaRe2 — Empower, Ignite, Transform

April 2026

Last week in Washington DC, on the sidelines of the IMF/World Bank Spring Meetings, I attended an IMF Capacity Development Talk titled "Financial Sector Overhaul in Ethiopia: Building Markets, Institutions, and Stability in a Challenging Context." For most attendees this was a technical policy discussion, but for me it was personal.

As someone who was born and raised in Ethiopia, and who later spent many years working there as a USAID Foreign Service Officer, this was more than a policy discussion.  I know Ethiopia’s complexity, resilience, and the gap that exists between policy ambition and ground-level reality. As I was listening to the Governor of the National Bank of Ethiopia lay out a sweeping reform agenda, I found myself focusing not only on the content of the discussion but also on what it might mean in practice.

The Reform Agenda — Ambitious and Wide-Ranging

The keynote speaker, Governor Eyob Tekalign Tolina, presented a frank account of where Ethiopia's economy stood before the reforms. It was a picture many development practitioners would recognize — an economy characterized by financial repression, dominated by the public sector, with significant market distortions, chronic foreign exchange pressures, high inflation, and an unsustainable debt burden.

The government's response is what he called the "Homegrown Economic Reform", which was framed not as an externally imposed program but as a fundamental, government-led re-orientation of the entire economy. The reforms span three pillars: a new monetary policy framework, foreign exchange liberalization, and financial sector capacity development. The Governor noted that early results are emerging but there is still more work to be done.  

What Resonated Most — Coordination and Institutional Capacity

Although it was an informative discussion, the one theme that resonated most strongly with me was the Governor's emphasis on coordination and institutional capacity building as the foundations to successful and effective reform.

Internally, the Governor highlighted the coordination between the Ministry of Finance, the Ministry of Planning, and the Commercial Bank of Ethiopia as critical to the reform's early progress. Externally, he acknowledged the role of the IMF and World Bank in providing targeted capacity development support across the three pillars of financial sector reform.

But the example that stayed with me most was a specific one about technical assistance. The Governor confirmed that IMF capacity building support helped build strong internal expertise — not just policy designs handed down from outside, but trained and qualified staff at the Ministry of Finance and the National Bank of Ethiopia who now understand the market dynamics to drive the reform agenda.

That distinction matters enormously. There is a significant difference between a government that implements reforms because external partners designed them, and a government whose own institutions understand, own, and can adapt those reforms over time. The latter is what sustainable development looks like.

The DaRe2 Connection — Why Institutional Capacity Is Not Optional

Across the development sector, there is a tendency to focus on policy design, financing mechanisms, and project delivery. While these are important, they are not sufficient on their own. Effective reform is determined by whether it delivers a long-term and sustainable impact rather than a short-term improvement that fades when the external support ends.  More importantly, it is the strength of the local institutions implementing it that guarantees effective and sustainable long-term reform.

Coordination structures, institutional capacity, trained staff who understand the systems they are working within — these are the foundations that too often not prioritized and treated as secondary concerns. Ethiopia's reform story is a reminder of why getting this right matters.

At DaRe2, strengthening local institutions to deliver sustainable, locally owned impact is not one part of what we do — it is the entire premise. The Governor's remarks in that room last week were a timely and welcome validation of that approach.

A Final Thought

I left the session with a clearer understanding of Ethiopia's reform agenda. Reform at this level requires sustained commitment, careful sequencing, and strategic coordination. As the Governor confirmed, there are early positive results emerging from the reforms.  However, it is worth noting that external pressures, particularly rising global fuel prices driven by instability in the Middle East, will test the resilience of these reforms. Higher fuel costs feed directly into inflation and put additional pressure on foreign exchange reserves — two of the very challenges the reform agenda is designed to address. While Ethiopia's homegrown reform will continue, the emphasis on coordination, institutional ownership, and homegrown capacity is the right foundation. That much I am confident about.