The ongoing International Monetary Fund-backed reforms saw another significant but quiet development in May, when the state-run Ethiopian Investment Holdings (EIH) joined banks, insurers, and pension funds in bidding for the central bank’s treasury bills (T-bills).
The sovereign wealth fund, whose board of directors is chaired by the Prime Minister, invested seven billion Birr in its first-ever T-bill purchase, marking a significant milestone in the country’s efforts to modernize its debt market.
The investment also coincides with a surge in the National Bank of Ethiopia’s (NBE) average T-bill interest rates, which have nearly doubled to around 16 percent in the months since the government signed on for an IMF extended credit facility program in late July 2024.
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Despite the stubbornly high inflation rate and historically limited demand for T-bills, financial experts see the wealth fund’s involvement, spearheaded by CEO Brook Taye (PhD), as a positive and innovative step in diversifying its portfolio and contributing to the government’s strategy to deepen the primary debt market.
“This decision is unusual and progressive,” Abdulmenan Mohammed (PhD), a financial analyst keeping a close watch on the market, told The Reporter Magazine. “Previously, SOEs deposited their funds in interest-free current accounts at the Commercial Bank of Ethiopia [CBE]. EIH’s participation in the T-bills market allows it to channel excess liquidity from its institutions into a productive, market-based treasury bill.”
EIH sourced the funds for its investment from the dividends of more than two-dozen SOEs under its wing, including the likes of the Ethiopian Airlines Group and Ethio telecom. These SOEs collectively control assets valued at over 150 billion Birr.
“The reform, spearheaded by the NBE, aims to reduce reliance on non-market-based financing, such as direct borrowing from the central bank, which has historically fueled inflation and foreign exchange misalignments,” Abdulmenan observes.
For the government, T-bills provide an alternative source of funding to address the budget deficit, projected at a record 416.8 billion Birr for the 2025/26 fiscal year.
“With an average interest rate of 16 percent, T-bills offer attractive returns for investors like EIH, particularly for short-term maturities ranging from 28 to 360 days,” Abdulmenan said.
He also noted that this competitive rate not only generates income for investors but also stimulates market activity by encouraging participation from other non-bank entities, including the private sector.
While EIH’s entry into the T-bills market is a boon for the government and investors, it poses challenges for the CBE, Abdulmenan cautioned.
Historically, the state-owned banking giant has relied on interest-free deposits from SOEs as a low-cost funding source.
With EIH redirecting seven billion Birr into T-bills, CBE risks missing out on these funds unless it offers competitive interest rates.
“CBE must either compete in the market or provide attractive rates to retain SOEs deposits,” Abdulmenan said. “Holding funds in non-interest-bearing accounts is no longer viable in this evolving financial landscape.”
This shift could catalyze broader market competition, compelling commercial banks to adjust their strategies.
Abdulmenan foresees that as more institutions, including private sector players, enter the T-bills market, the financial sector stands to benefit in terms of dynamism. He is optimistic about the long-term impact, predicting that a deeper T-bills market will pave the way for the introduction of long-term bonds and corporate bonds, further diversifying Ethiopia’s capital market.
Ethiopia’s fiscal challenges have long been exacerbated by an underdeveloped debt market. In the past, the government resorted to borrowing from the NBE or printing money to finance budget deficits, practices that contributed to inflation and foreign exchange misalignment, says the expert
The record 2025/26 budget, totaling 1.93 trillion Birr, underscores the need for sustainable financing mechanisms. By expanding the T-bills market, the government aims to borrow from existing liquidity in the economy, reducing its dependence on inflationary measures.
Mered Bisrat Fikireyohannes, a finance and investment expert, emphasized that budget deficits are not inherently problematic, but the methods used to address them have historically been flawed.
“Borrowing from the NBE or printing money has long been an issue,” he said. “The government should compete in the market and borrow at competitive rates, similar to the private sector.”
With the NBE’s macroeconomic reform policy setting the interest rate at 15 percent, T-bills offer a viable avenue for the government to access funds while fostering market discipline.
Mered also highlighted the NBE’s recent efforts to dematerialize T-bills, transitioning from paper-based to electronic systems. This modernization discourages government direct borrowing from the NBE and encourages market-based financing.
“By making T-bills accessible through the Ethiopian Securities Exchange [ESX], the government can broaden participation, allowing retail investors and institutions to purchase bonds,” said the expert.
This move is expected to stimulate the nascent Ethiopian capital market, with brokerage fees—currently at 1.6 percent—providing an attractive proposition for investors and intermediaries.
EIH’s role in financial innovation
EIH’s participation in the T-bills market is part of its broader mandate to manage and optimize the financial performance of Ethiopia’s SOEs. A report from the fund indicates that it collected 1.5 trillion Birr in revenues from the SOEs under its umbrella during the first three quarters of the 2024/25 fiscal year, an 86 percent increase compared to the previous year.
These enterprises also paid 98 billion Birr in taxes and generated 19 billion Birr in state dividends, of which 14.5 billion Birr was transferred to the Ministry of Finance.
“The remaining dividends must be used efficiently,” CEO Brook Taye told The Reporter Magazine. “Idle funds lose value over time due to inflation. By investing seven billion Birr in T-bills with a 13 percent return, we are ensuring both safety and profitability.”
The returns on EIH’s T-bill investment are approximately double the deposit interest rates offered by commercial banks, although rates for time-deposit accounts could be more profitable in some cases.
Still, Brook argues the investment is an attractive one.
“Our investment supports the Finance Ministry’s ability to finance societal needs without relying on NBE loans,” he said. “This market-based approach strengthens fiscal policy and promotes financial stability.”
Observers expect EIH’s involvement to encourage other institutions to explore the T-bills market, further deepening Ethiopia’s capital market.
A regional perspective
Ethiopia’s T-bills market is still in its infancy compared to more developed markets in Africa, such as Kenya, Egypt, Nigeria, and Ghana, where T-bills are widely accessible to retail investors and offer competitive returns.
Brook emphasized the establishment of yield curves that serve as benchmarks for the cost of capital, a critical tool for investment analysis.
“In Ethiopia, we lack a clear yield curve,” he said. “Our participation in the T-bills market helps establish this benchmark, enabling more efficient resource allocation.”
A yield curve, which plots the interest rates of bonds with different maturities, provides insight into the cost of capital and macroeconomic dynamics. In mature markets, it serves as a reference for investors and policymakers.
By investing in T-bills, EIH is contributing to the creation of a risk-free yield curve, as government-backed securities are considered safe investments.
“You don’t have to worry about repayment—the government will always honor its obligations,” Brook said, highlighting the low-risk nature of T-bills.
EIH’s entry into the T-bills market is a catalyst for broader financial sector reform. As the market grows, experts, including Abdulmenan and Mered, anticipate increased participation from private sector players, pension funds, and retail investors.
The ESX, which is still in its early stages, is expected to play a pivotal role in facilitating these transactions.
“A vibrant T-bills market will create a competitive environment, forcing banks to offer better rates to depositors,” Mered said. This, in turn, will enhance financial inclusion and stimulate economic activity.
For EIH, the T-bills investment is just the beginning. Brook hinted at future participation in debt securities and profit-dividend bonds, signaling EIH’s commitment to driving Ethiopia’s capital market development.
“As the market evolves, we expect to see more firms, including private sector players, engage in these opportunities,” he said.
EIH’s participation in the T-bills auction marks a turning point for Ethiopia’s financial sector. By diversifying the investor base, modernizing debt instruments, and fostering market-based financing, the country is laying the foundation for a more resilient and inclusive economy.
“A deeper T-bills market is good for the government, investors, and Ethiopia’s long-term economic stability,” said Abdulmenan.
