VOE NEWS | ADDIS ABABA | July 29, 2026 — Ethiopia’s Ministry of Finance plans to raise 197.2 billion birr through Treasury bill (T-bill) auctions during the first quarter of the 2026/27 fiscal year, signaling the government’s continued reliance on domestic debt financing as sweeping monetary reforms reshape the country’s financial markets. The fundraising campaign comes amid sharply declining Treasury bill yields and the National Bank of Ethiopia’s (NBE) accelerated shift toward market-based monetary policy tools designed to improve liquidity management and strengthen inflation control.
The Ministry of Finance has scheduled seven Treasury bill auctions between July 8 and September 30, with the largest single issuance—worth 40 billion birr—planned for August 5.
The first auction of the new fiscal year, held on July 8, raised 30.71 billion birr at an average yield of 9.2 percent, marking the return of single-digit Treasury bill rates after a prolonged period of elevated government borrowing costs. The decline continues a trend that began during the previous fiscal year, when average yields fell to 11.7 percent by the end of 2025/26 before declining further this year.
According to the ministry’s issuance calendar, the government will offer Treasury bills with maturities of 28 days, 91 days, 182 days, and 364 days. Nearly 79 billion birr of the planned borrowing will come through one-year securities, while the remainder will be distributed across shorter-term instruments.
The decline in Treasury bill yields coincides with the National Bank of Ethiopia’s ongoing transition from direct monetary controls to an interest rate-based policy framework. Under the new system, market interest rates and liquidity conditions are expected to play a greater role in determining financial conditions across the economy.
A central component of this transition is the expanding use of repurchase agreements (repos) through open market operations. Repo transactions allow the central bank to inject or absorb short-term liquidity by temporarily buying or selling government securities, making them a key mechanism for influencing money market interest rates and improving the transmission of monetary policy.
The International Monetary Fund (IMF), in its latest assessment of Ethiopia’s economic reform program, noted that the NBE shifted its liquidity management operations in January 2026 from fixed-rate, full-allotment operations to competitive uniform-rate auctions. The Fund described the move as another step toward market-based monetary management but cautioned that liquidity absorption has become more expensive for the central bank even as banks continue to demonstrate strong demand during auctions.
The IMF has encouraged Ethiopian authorities to make greater use of repo operations and other open market instruments while gradually phasing out direct administrative controls, including credit growth limits, in favor of market-driven monetary policy mechanisms.
Financial analysts say the rapid decline in Treasury bill yields could reduce the appeal of government securities for some investors compared with recent months. At the same time, lower yields reduce the government’s domestic borrowing costs and may contribute to lower financing costs throughout the banking system as repo transactions and the interbank money market continue to expand.
Since Ethiopia launched its macroeconomic reform program in mid-2024, the Treasury bill market has grown into the government’s principal source of domestic financing while also supplying the securities needed to support the National Bank of Ethiopia’s expanding repo market and broader open market operations.
The federal government’s approved 2.3 trillion birr budget for the 2026/27 fiscal year projects that approximately 330 billion birr—about 14 percent of total expenditure—will be financed through domestic borrowing, primarily via Treasury bill issuances.
Earlier this month, the National Bank of Ethiopia’s Monetary Policy Committee raised its benchmark policy interest rate from 15 percent to 16 percent, reinforcing the central bank’s commitment to steering monetary policy through interest rates rather than direct administrative controls.
The broader reform agenda has also strengthened Ethiopia’s money market infrastructure. Since market-based pricing was introduced in the primary Treasury bill market in 2019, government securities have increasingly become the benchmark for domestic interest rates and a cornerstone of the country’s evolving monetary policy framework.
Lower borrowing costs have extended beyond Treasury bills. Yields on open market operations also declined sharply, with the final liquidity absorption auction of the previous fiscal year recording an average rate of 8.5 percent.
Economists say the simultaneous decline in Treasury bill yields and open market rates, together with the growing use of repo operations, reflects Ethiopia’s gradual transition toward a modern, market-oriented monetary system. If sustained, the reforms could improve liquidity management, strengthen monetary policy effectiveness, deepen domestic financial markets, and lower the government’s long-term financing costs.
