Ethiopia’s financial landscape is heating up with a record budget, foreign banking breakthroughs, and digital governance strides, but heavy debt burdens cast a shadow. This week’s updates spotlight Kenya’s KCB Group as the first foreign bank in decades, the EU-funded BEIC project’s closure, and bold fiscal reforms, amid challenges in liquidity and digital adoption. Here’s the latest roundup of key developments driving Ethiopia’s economic path.
Macroeconomics & Fiscal Policy
Record ETB 1.93 Trillion Budget Proposed
On June 10, 2025, Finance Minister Ahmed Shide presented a 34% larger ETB 1.93 trillion budget for 2025/2026 to Ethiopia’s House of People’s Representatives. Funded 75% by domestic revenues, aid, and grants, it allocates ETB 1.2 trillion for recurrent spending, ETB 415 billion for capital projects, ETB 315 billion for regions, and ETB 14 billion for Sustainable Development Goals. Debt servicing at ETB 463 billion outpaces capital spending, while new taxes like a 15% VAT on fuel spark debate amid cost-of-living concerns. More
15% VAT on Fuel Sales Starting July
Starting July 2025, the government will impose a 15% VAT on fuel sales, aligning with plans to liberalize prices and phase out subsidies. This is expected to generate over ETB 3 billion in revenue, alongside ETB 1.9 billion from sugar and ETB 337 million from salt, previously exempt from VAT. The policy, part of the 2025/26 budget, aims to reduce fiscal burdens but may impact household expenses. Sheger FM 102.1
New Income Tax Law to Penalize Large Cash Transactions
A forthcoming income tax proclamation will penalize cash transactions over ETB 10,000 to promote financial transparency. Payers face disallowed deductions for excess amounts, while recipients incur double penalties. Exemptions apply to government bodies, banks, and microfinance institutions. Critics call for addressing systemic cash reliance before enforcement. Sheger FM 102.1
Financial Sector & Capital Markets
KCB Group to Debut as First Foreign Bank
Kenya’s KCB Group Limited is poised to become Ethiopia’s first foreign bank in over 50 years under the November 2024 Banking Business Proclamation. Discussions with the National Bank of Ethiopia are underway for entry via subsidiaries or stakes (capped at 40% foreign ownership). KCB’s 2024 revenues of $1.5 billion highlight its potential to transform Ethiopia’s underserved market. The Reporter
Government Bonds to Debut on ESX
From July 2025, the Ethiopian Securities Exchange (ESX) will launch government bond sales, offering 16.5%–20% annual returns to attract diaspora and foreign investors. ESX CEO Tilahun Kassahun emphasized domestic debt financing, with Sukuk bonds targeting Middle Eastern investors, strengthening Ethiopia’s capital markets. The Reporter
Banks Face Liquidity Crunch
Commercial banks are grappling with a liquidity crisis due to high loan-to-deposit ratios (80%+), mandatory Treasury bill purchases, and stagnant deposit growth. Inflation, forex shortages, and cash hoarding exacerbate the issue, while mobile money platforms divert deposits. KCB’s entry signals heightened competition. The Reporter
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Digital Transformation & E-Governance
EU-Funded BEIC Project Concludes
The €7.2 million EU-funded Business Environment and E-Government Project (BEIC) ended in June 2025, digitizing public services like the Integrated Company Creation Journey (ICCJ), e-filing for taxes, and e-consultation platforms. Despite training 1,200 civil servants and processing 3 million digital filings, the ICCJ awaits INSA security clearance, and low digital literacy (only 33% internet access) hinders adoption. Sustainability depends on government capacity and political will. Shega
Agriculture & Insurance
Pula Advisors Targets 3 Million Farmers
Pula Advisors, with Oromia Insurance S.C. and others, insured 700,000 smallholder farmers by December 2024, aiming for 3 million by fiscal year-end. Announced at UNDP’s Financial Resilience in Agriculture forum on June 11, 2025, the initiative uses Area Yield Index Insurance via the Input Voucher System. The new Rural Finance Service Unit (RFSU) will coordinate efforts, tackling barriers like premium affordability and low awareness. EBR
Trade & Investment
FOCAC 2025 Boosts China-Africa Ties
At the FOCAC Ministerial Meeting in Changsha (June 10–12, 2025), China announced zero-tariff trade for 53 African nations, building on $295.6 billion in 2024 trade. Ethiopia’s Foreign Minister Gedion Timotheos emphasized FOCAC’s South-South cooperation role. China pledged $50 billion for 2025–2027, with RMB 13.38 billion for value chains and RMB 72.28 billion for infrastructure, supporting Ethiopia’s industrialization. Capital
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