Ethiopian Reporter - Amharic Version

The Reporter | Saturday |April 30, 2011
Reporter BUSINESS
THE
can nBe do it all?
Regulatory Vs. policy priorities
By asraT seyoum
Though the earliest sign for the emergence of a financial market in Ethiopia was seen in 1906
with the establishment of the first bank, bank of Abyssinia, it was not before 1964, well into the
last decade of Emperor Hailessilase’s rule that the sector gained a formal regulatory organ-the
National Bank of Ethiopia (NBE). In between that time, the bank carried out the dual function
of both commercial and central banking. However, the newly flourishing developments of the
financial sector were short lived as the Socialist oriented military regime, restricted private
investment in the sector thereby damping its growth for seventeen years, thereafter. History
of the bank, nonetheless, shows that the military regime gave additional power to the NBE in
economic planning together with the ministry responsible for macroeconomic planning.
However, new down in the sector came in 1994 when private investment was allowed and
the first private bank Awash International Bank SC was established in the same year. The
proclamation that led to the establishment of the NBE in 1994 which was further amended in
2008 bestowed the institution with the power to control monetary management in addition to
its responsibility to insure bank-based financial sector’s prudence. The sector aside from few,
yet relatively big, state-owned banks, now it oversees some 12 private commercial banks, not
to mention other six in the pipe line. On one hand, it formulates monetary policies while on
the other issuing directives to govern banks. However, the regulatory mandate of NBE, as laid
out in its official website, also extends to insurances, microfinances and the newly evolving
security markets. However, professionals in the area agree that the supervisory role that it plays
on banks, thus far, is the most important one as the bank-driven financial sector in the country
greatly affect the agriculture, industry and others eventually. These professional also point to
banks leverage in affecting the amount of money in the system there by inflation as one of
main premises behind the above assertion. However, there are criticisms from pundits when it
comes to the dual duty—monetary management and financial sector prudence—of the NBE.
These criticisms are mainly focus on the nature of conflicting goals of the two responsibilities.
According to a macroeconomist, who do not want to be named, the monetary goals set by
central banks might sometimes come in conflict with the solvency of banks operating in the
sector. That is why; he went on explaining, experience of some of other economies show
eventual separation of the two roles into individual institution. Some of the European countries
indeed took steps in separating regulation of the financial sector from the central banking.
The monetary policy framework of the NBE outlined in website clearly shows some overlapping
with banking sector’s wellbeing. The framework document states that the countries’ monetary
policy targets, as is the case in most of the monetary policies of other countries, inflation and
exchange rate. The ultimate goal of the monetary policy is to stabilize prices (inflation) in the
economy apart from maintaining the foreign exchange regime, it said. In fact, some of the
policies that the central bank has taken in recent times showed bank’s sensitivity to the issue of
inflation in the economy. The credit ceiling released few weeks ago is one case in point where
NBE’s priority to stability in prices show, according to the some views reflected at the time.
The monetary framework further explains that the ultimate targets are not easy to achieve; at
“ However, there are criticisms
from pundits when it comes
to the dual duty—monetary
management and financial
sector prudence—of the NBE.
least not directly by some of policy instruments available to the bank. However, the document
shows that the bank goes around this difficulty by choosing an intermediate target—Money
supply. It said that the bank aims to reach ultimate target, inflation and exchange rate stability,
through money supply, which is directly influenced by other set of targets—operational target.
The operational targets which can be easily affected by the bank’s policy instruments are the link
the money supply and the instruments, thereby finishing the transition mechanism to ultimate
targets. However, what to look for in here, according to above the above economist, are the
policy instruments at the NBE’s disposal. He says the instrument is not something abstract, in
fact these instruments are the rather apparent polices in the sector. Reserve requirement set on
commercial banks, deposit interest rate floor, credit control (the ceiling on credit is one recent
application) and open market sale of bond and bills, the like seen in the newly flourishing
security market. “The recent experience in the application of the credit cap on commercial
banks is adequate to understand conflict of monetary management with bank’s wellbeing,”
he explains. According to the central bank’s justification for the cap, limiting credit helps to
check the then galloping inflationary pressure in the economy, while on the other hand, the
loan advancing ability of the banks was severely hampered in process. At the same time the
ConT`d on page 8
www.ethiopianreporter.com
CALL FOR PROPOSAL
HIV/AIDS Prevention and Control Office provides support to HIV/
AIDS related activities coordinating and implementing partners
at federal levels and to regions, from the funds secured through
Rolling Continuation Channel Phase One Accelerated plan of 2011
(RCC Phase one)
This is a Call to submit a proposal for those engaged on HIV/AIDS
programs at the federal level. The fund is secured through the
Global Fund RCC grant. The criteria for the proposal submissions
are outlined below.
1. Proposals and plans that can be submitted at federal level:
• Federal government institutions who need funding for
work place interventions to reach their staff and clients
• Federal level coalitions for coordination, capacity
building and supportive services.
• Federal level Non Governmental Organizations for
coordination, capacity building and monitoring and
evaluation, support services at the federal levels.
• National media agencies-for and overall advocacy,
awareness creation and information dissemination.
• Private sectors for coordination, capacity building
activities, and monitoring and evaluation.
1.1 Proposals and programs that are not acceptable at federal
level
• Organizations Functioning in regions will not apply at
federal level to access RCC grant fund. Project holders
working on program level other than coordination
should submit their proposals at the respective regional
HAPCOs where the implementation is taking place.
• Federal level institutions should not request funding for
programmatic interventions other than for coordination,
capacity building, except for work place interventions of
HIV/AIDS programs.
2. Basic Contents of the projects that are expected to be
fulfilled:
• Institutions should be legally registered, should attach
tax clearance, audited financial books, and should
present other evidences for credibility
• Project proposal shall encompass, background, rationale,
Target Groups/Beneficiaries, objective, outcomes,
Strategies, activities out puts, time frame, Management
& Organization, Budget,, Opportunities and Risks,
Monitoring & Evaluations and Sustainability should be
articulated clearly.
3. The maximum request for funding should be for one year.
4. All eligible project holders are requested to submit their
project proposals and plan of actions within 21 working
days of this announcement and project proposals and plan
of actions that are submitted after deadline will not be
accepted.
For Additional Information or Inquiry
Telephone No. 0115 525095, 0115 503506
P.O.Box 122323 Fax 0115 503358/95
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