Under a new draft law being considered by parliament, the minimum capital of Ethiopia's central bank would be increased nearly twentyfold - setting the stage for what would amount to one of the largest capital surges for a monetary authority in history.
The proposed changes to the National Bank of Ethiopia's (NBE) Establishment Proclamation envisions raising the minimum paid-up capital from its current level of 500 million Birr to a proposed 10 billion Birr. At the same time, the draft sets the authorized capital at an enormous 20 billion Birr.
If approved, the capital injection of 9.5 billion Birr would represent an unprecedented 1800 percent boost to the NBE's balance sheet capital reserves. The nationwide funds transfer would completely transform the central bank's financial profile. Â
Policymakers say bolstering the NBE's capital buffers in such a dramatic fashion is needed to reinforce financial stability as Ethiopia's economy and banking system rapidly modernize.
Approved by the Council of Ministers last week, the draft legislation, seen by BirrMetrics, stipulates the NBE's capital will be fully owned by the government. It also allows the central bank's board to incrementally raise capital levels using transfers from reserves over time.
The government would be required to preserve the paid-up capital intact at all times. The bill establishes rules allocating annual profits first to reserves before any distributions. Net losses would deduct from reserves.Â
The draft proclamation states that "the Government shall ensure that the National Bank is kept solvent at all times."
Officials aim to strengthen the NBE's financial position and regulatory powers through the reforms. Approval would bolster the central bank as Ethiopia's rapidly growing economy continues expanding.
Parliament will now review the proposed changes, which would codify the NBE's new capital framework if ratified. The vote will determine whether Ethiopia undertakes the largest capital increase in its central bank's history.