The Ethiopian federal government’s mandatory treasury bond policy is causing unease as commercial banks’ holdings near the 50-billion-birr mark, according to the Ministry of Finance’s latest debt bulletin.
Introduced in November 2022, the policy obliges banks to purchase treasury bonds valued at 20 percent of their loan and advance disbursements, maturing in five years with an interest rate two points higher than the minimum savings rate.
Auctioning bonds worth over 38 billion birr between November 2022 and July 2023, the government aims to finance a significant portion of the current fiscal year’s 281-billion-birr deficit through these mandatory investments, drawing criticism for undue intervention and potential repercussions on lending rates and banks’ activities.
Analysts suggest exploring alternative means to finance the budget deficit rather than relying solely on obligatory bond purchases.
The debt bulletin indicates that the state-owned Commercial Bank of Ethiopia covers 26 percent of the total 48.3 billion birr in treasury bonds held by the banking industry.