Private Credit Grew 50% Even Before Ethiopia Removed Lending Cap, IMF Says - EUROPE SAYS
Fund report raises questions over effectiveness of the credit cap as lending surged ahead of this week’s monetary policy overhaulPrivate-sector credit in Ethiopia was expanding at an annual rate of 50 percent. . .
Fund report raises questions over effectiveness of the credit cap as lending surged ahead of this week’s monetary policy overhaulPrivate-sector credit in Ethiopia was expanding at an annual rate of 50 percent even before authorities removed the commercial bank credit cap this week, according to the latest International Monetary Fund review of the country’s reform programme. The figure is more than double the annual credit growth ceiling of 24 percent that had been imposed on commercial banks since mid-2023 as part of efforts to contain inflation and excessive monetary expansion. The IMF report shows that while overall credit growth remained relatively moderate at around 25 percent year-on-year by March 2026, lending to the private sector accelerated sharply, while lending to government remained almost unchanged and credit to state-owned enterprises declined. According to the Fund, total credit growth stood at approximately 25 percent year-on-year at the end of March, driven by very high private credit growth of 50 percent, while credit to government grew by only 0. 3 percent and lending to state-owned enterprises contracted by 10 percent. The report suggests the acceleration in private lending was occurring despite the existence of the credit cap and may partly explain the decision announced this week to replace the blanket restriction with more targeted instruments. Authorities had already committed under the IMF-supported reform programme to fully remove the cap by the end of December 2026. The decision announced this week therefore implemented that commitment more than five months ahead of schedule. The Fund argued that the country should continue moving away from direct quantitative restrictions and toward market-based monetary policy instruments. “Fostering a competitive, market-oriented financial sector, including through removing direct monetary instruments and quantitative limits, is important to strengthen monetary transmission,” the IMF said. However, the Fund also warned that the pace of private credit growth warranted closer monitoring. While non-performing loans remained low and private credit still represented a relatively modest share of GDP, the IMF said rapid lending growth concentrated in particular sectors required greater scrutiny from regulators. The report highlighted the Commercial Bank of Ethiopia as an area of particular attention, noting that private credit growth at the state-owned lender had accelerated as the bank sought to diversify away from its historically large exposure to government assets following recapitalisation. The Fund recommended enhanced supervision of lending practices, including stronger oversight of credit approval processes, collateral management, borrower due diligence and internal governance systems across the banking sector. The findings provide important context to this week’s monetary policy decisions. On Monday, authorities abolished the annual credit growth ceiling, raised the policy interest rate from 15 percent to 16 percent and introduced targeted reserve requirements that can be imposed on individual banks whose lending behaviour is considered a risk to price stability. Under the new framework, institutions with high loan-to-deposit ratios or unusually rapid lending growth could face additional reserve obligations, allowing regulators to intervene on a bank-by-bank basis rather than relying on an economy-wide lending restriction. The move signals a broader transition in Ethiopia’s monetary policy framework from direct administrative controls toward indirect and market-based instruments centred on interest rates, reserve requirements and liquidity management. Tags:EconomyIMFInternational Monetary Fund