Public Finance & Economic Development
Ethiopia’s Interbank Market Surpasses 1 Trillion Birr
By June 2025, the IMM crossed ETB 500 billion in cumulative volume, a signal of rapid adoption. Market watchers saw that as proof of demand for interbank liquidity trading.
Ethiopia’s interbank money market surpasses 1 trillion Birr in under a year, reshaping financial reform and opening doors to foreign banks.
Ethiopia Hits a Milestone in Market Reform
Ethiopia’s Interbank Money Market (IMM) has achieved a major milestone. In less than a year since its launch in October 2024, the market has crossed 1 trillion Birr ($6.83 billion) in cumulative trades.
The Ethiopian Securities Exchange (ESX) announced the achievement on September 29, 2025, and described it as “historic.” The platform has quickly become central to Ethiopia’s financial reforms.
The IMM currently hosts 26 commercial banks. It gives lenders a transparent venue to borrow short-term funds, trade currencies, and meet reserve requirements.
“Crossing 1 trillion ETB is more than a number. It signals improved liquidity, greater transparency, and a reliable venue for daily funding,” said Michael Habet, Chief Operating Officer of the ESX.
Within six months of operation, the market had already cleared 500 billion Birr, according to Ethiopian Business Review.
A Push Toward Market-Based Policy
The IMM is a key part of the National Bank of Ethiopia’s (NBE) effort to move away from direct monetary controls. It improves price discovery, strengthens liquidity allocation, and makes monetary policy more effective.
The timing matters. In July 2025, Ethiopia began its new fiscal year. The NBE raised the credit-growth ceiling to 24%, up from 16%. At the same time, it pledged to maintain a tight monetary stance to anchor stability.
The central bank stated that reforms would continue, even as inflation slowed and external accounts improved. Ethiopia’s cabinet approved a 2 trillion birr($15B) budget for 2025-26, a 31% increase focused on security, productivity, and disaster relief under IMF-backed reforms this June.
Inflation Eases, Market Rates Drop
Ethiopia’s macroeconomic picture has started to stabilize. Data from the Ethiopian Statistical Service shows inflation fell to 13.6% in August 2025, the lowest since March. It eased slightly from 13.7% in July.
At the same time, money supply grew strongly. Broad money expanded by 23.1% while base money jumped 70.7% year-on-year by August.
Short-term borrowing costs have also declined. The yield on the 91-day Treasury bill dropped to 15.0% in August, down from 17.6% in June 2025.
Economists link the easing to stronger foreign exchange inflows. Exports of gold and coffee, plus tourism, remittances, and a Standing Lending Facility, have eased liquidity pressure.
The IMF expects these reforms to support a current account surplus through 2026 (Reuters).
Foreign Banks Eye Entry
The IMM success comes as Ethiopia opens its banking sector to foreign capital. In June 2025, the NBE issued Directive SBB/94/2025, allowing foreign banks to apply for licenses and acquire stakes in local lenders.
This directive followed a landmark law passed in late 2024 that formally opened the sector, as Reuters reported.
Several large African lenders have already signaled interest. These include Kenya’s KCB Group, Equity Group, Standard Bank Group of South Africa, and Banque pour le Commerce et l’Industrie Mer Rouge (BCIMR) from Djibouti.
“Ethiopia’s banking industry has been closed for decades, but reforms are opening the door to regional champions,” said Dr. Alemayehu Geda, an economist at Addis Ababa University. “The interbank market provides the infrastructure they need.”
Reform Momentum and Challenges
The ESX’s progress reflects a shift in Ethiopia’s broader financial landscape. In July 2025, the country launched its first formal securities exchange since Emperor Haile Selassie’s era (Financial Times). Together with the IMM, these platforms are designed to modernize capital markets.
Still, challenges remain. Analysts warn that institutional capacity and regulatory strength must grow to handle greater volumes. Building investor confidence will take time, especially in a country where financial literacy remains low.
Officials, however, see the early gains as proof of momentum.
“The IMM is laying the foundation for a strong domestic market. Reaching a trillion Birr in under a year shows the appetite and urgency for reform,” said Solomon Desta, Deputy Governor of the NBE.
Public Finance & Economic Development
Kenya Flags Wider Budget Deficit in 2026/27
Kenya projects a 5.3% budget deficit in the 2026/27 fiscal year, citing increased infrastructure and social spending. The government plans to fill the gap through external and domestic borrowing.
Kenya projects a wider 2026/27 budget deficit at 5.3% of GDP, leaning more on external borrowing amid fiscal and debt pressures.
Kenya’s Budget Deficit to Widen to 5.3% of GDP in 2026/27
Nairobi, Kenya — Kenya’s Finance Ministry projects that the budget deficit will widen to 5.3% of GDP in the 2026/27 fiscal year. This is higher than earlier forecasts. Officials say slow revenue growth and sustained spending have caused the gap.
The ministry will rely on domestic borrowing to finance most of the deficit. “We aim to fund the deficit responsibly while protecting the domestic market,” a Treasury statement said.
Revenue Shortfalls and Spending Pressures
The draft 2026/27 Budget Policy Statement shows total revenue at KSh 3.487 trillion, or about 16.7% of GDP. Revenue has underperformed because of slow economic growth, lower tax compliance, and weaker commodity prices.
The government plans total spending of KSh 4.642 trillion. This includes development projects, county transfers, and debt service. The resulting deficit will reach KSh 1.106 trillion.
To fill the gap, the Treasury will borrow KSh 1.01 trillion domestically and KSh 99.5 billion externally.
Domestic Borrowing Strategy
Officials say focusing on domestic borrowing will reduce reliance on foreign lenders. They also want to manage refinancing risks. Analysts warn that increased domestic borrowing may raise interest rates and crowd out private lending. “We must monitor the impact on businesses and households,” said a Nairobi-based economist.
Fiscal Challenges
Kenya has faced repeated revenue shortfalls. Weak tax compliance, underperforming state-owned enterprises, and slower economic growth contributed to the gap. The government is introducing reforms to expand the tax base, improve collections, and prevent leakages. “Revenue reforms will secure fiscal sustainability,” Treasury officials said.
Debt service remains a major challenge. Kenya’s public debt now exceeds KSh 7 trillion, with domestic debt taking the largest share. Interest payments consume a large portion of revenue, limiting funding for development.
Economic Outlook
Officials expect the deficit may narrow if reforms succeed and economic growth strengthens. Growth in agriculture, manufacturing, and tourism could improve revenue collection.
However, uncertainties persist. Global market volatility, climate shocks, and fluctuating commodity prices could affect revenue. Analysts urge the government to balance fiscal discipline with growth-promoting investments. “We must invest in key sectors while maintaining fiscal stability,” said a policy expert.
Parliamentary Approval
The government must submit the final budget to Parliament before July 2026. Lawmakers are expected to examine domestic borrowing plans closely. They will focus on ensuring borrowing does not restrict private sector credit or raise inflation.
Conclusion
Kenya faces a critical fiscal year. The widening deficit highlights the need for disciplined spending and stronger revenue collection. Officials say careful implementation of reforms could stabilise finances while funding essential services and development projects.
Public Finance & Economic Development
Kenya Approves Infrastructure Sovereign Wealth Fund
Proceeds from state asset sales, including a stake in Safaricom, will help seed the new funds. Officials say this approach will crowd in private capital and support long-term growth.
Kenya creates an infrastructure sovereign wealth fund to finance projects, cut debt, and attract private investment.
NAIROBI, Dec 15 — Kenya’s cabinet approved the creation of an infrastructure fund and a sovereign wealth fund on Monday. The funds aim to finance development projects and reduce reliance on public borrowing.
President William Ruto first announced the plans in October. He said the funds will mobilise investment without pushing debt to unsustainable levels. (Reuters)
Funds aim to drive growth
The infrastructure fund will focus on transport, energy, and water. Meanwhile, the sovereign wealth fund will manage state assets to generate returns for long-term spending.
Officials expect the funds to attract pension funds, private equity, development finance institutions, and sovereign investors. Consequently, Kenya hopes to broaden its investment base.
Privatisation to seed financing
The government plans to sell part of its Safaricom stake to fund the infrastructure vehicle. This approach allows the government to ring-fence proceeds for infrastructure without adding debt.
Finance Cabinet Secretary Ephraim Mwangi Maina said, “We will crowd in private capital while maintaining fiscal discipline.”
Debt pressures drive reform
Kenya’s public debt exceeded 70% of GDP in recent years. High debt limits government spending and increases borrowing costs.
Economist James Shikwati said, “The success of these funds depends on clear governance and transparency.”
IMF talks continue
The cabinet’s decision comes as Kenya prepares for an IMF staff visit in January 2026. They will discuss a possible new lending programme focused on fiscal consolidation and reforms.
Monetary easing supports growth
The Central Bank of Kenya cut its benchmark rate several times in 2025. The moves aim to lower borrowing costs and stimulate private-sector investment. Consequently, officials hope to revive economic activity and support growth.
Infrastructure priorities under new model
Major projects, including the Naivasha–Kisumu Standard Gauge Railway and power transmission upgrades, will benefit. Energy expansion is supported by KETRACO public-private partnerships, aligning with Kenya’s broader investment strategy.
Governance and oversight
Economists and civil society groups urge strong governance to prevent mismanagement. They recommend transparency, independent audits, and clear reporting frameworks to attract investors.
Parliamentary next steps
The cabinet will submit draft legislation to parliament soon. Lawmakers will review mandates, governance structures, and reporting requirements.
Public Finance & Economic Development
IMF Kenya Programme Talks Resume in January
IMF Kenya programme talks resume as staff plan a January visit to Nairobi. Discussions focus on fiscal reforms, debt sustainability, and new funding.
IMF Kenya programme talks resume as staff visit Nairobi in January to discuss funding, fiscal reforms, and debt sustainability measures.
IMF Staff to Visit Kenya in January for Fresh Talks
Nairobi, Dec. 10, 2025 — The IMF Kenya programme will enter a new phase as International Monetary Fund staff prepare to visit Nairobi in January to discuss a potential support programme. This follows a recent meeting between President William Ruto and IMF Managing Director Kristalina Georgieva in Washington DC, aimed at reviving funding negotiations for the East African economy.
Central Bank of Kenya (CBK) officials have emphasized the urgency of a “funded programme” that would unlock fresh support while ensuring fiscal stability. In a statement, the CBK Governor said: “We continue discussions with the IMF on getting a new funded programme. We expect a staff visit in January to formalize negotiations.” (Reuters)
Background: Why Kenya Needs a New IMF Programme
Kenya’s previous $3.6 billion IMF facility expired in April 2025, leaving the country reliant on limited external financing.The upcoming IMF Kenya programme discussions aim to resolve critical issues, including fiscal reforms, revenue generation, and debt.The upcoming IMF Kenya programme discussions aim to resolve critical issues, including fiscal reforms, revenue generation, and debt sustainability.
Negotiations have previously stalled over the classification of securitised government debt. Kenya maintains that certain liabilities, held by special-purpose vehicles, are not sovereign obligations, but the IMF views them as government debt. This disagreement has repeatedly delayed agreement, complicating the path to new funding.
Analysts note that securing a renewed IMF programme is pivotal for Kenya as it grapples with high public debt, rising expenditure pressures, and global interest rate volatility.
January Mission: Key Objectives
The IMF staff mission, scheduled for mid-January, will review Kenya’s financial performance, tax revenue targets, and plans for expenditure reforms. Officials expect discussions to cover debt sustainability, fiscal discipline, and potential lending support to stabilize the economy.
“The IMF Kenya programme is critical for restoring investor confidence and easing foreign-exchange pressure,” said an economist familiar with the discussions. “It will determine whether Kenya can maintain macroeconomic stability in 2026.”
Government officials stress that a successful programme could unlock billions in funding while supporting public services and key infrastructure projects.
Challenges for Implementation
Past IMF agreements required Kenya to meet strict performance benchmarks, including revenue collection targets and expenditure controls. Failure to meet these targets contributed to the previous programme’s expiry in April 2025.
“Without agreement on fiscal reforms and debt classification, any new IMF Kenya programme may be delayed,” said a policy analyst in Nairobi.
The government is now working to reconcile internal fiscal policies with IMF conditions, aiming for a balanced approach that maintains economic sovereignty while meeting international requirements.
International Implications
The upcoming mission has drawn attention from investors and regional partners. Uganda, Tanzania, and Ethiopia are closely monitoring developments, as Kenya’s fiscal stability impacts East African trade corridors, currency flows, and regional projects.
The IMF’s engagement also signals continued international interest in supporting emerging economies amid global economic uncertainties. Analysts say the January visit could set the stage for similar negotiations in neighboring countries if Kenya achieves a successful agreement.
Outlook
The IMF Kenya programme talks scheduled for January will be a defining moment for the country’s economic policy. Success could enhance fiscal discipline, restore investor confidence, and improve access to international funding, while delays may intensify economic pressures and weaken regional economic stability.
“Kenya’s next steps will determine whether the IMF deal becomes a lifeline or another missed opportunity,” said a senior economist in Nairobi.
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