Forex Reforms Expose Central Bank To Colossal Losses

Auditors call for strategic intervention to manage 445bln Birr in unrealized forex losses

The government’s forex market reforms have exposed the National Bank of Ethiopia’s (NBE) to losses of close to 450 billion Birr via its foreign currency-denominated assets and liabilities, including obligations to international financial institutions and foreign currency reserves, reveals an audited financial statement published this week.

The statement, covering the 2024/25 fiscal year and signed by newly appointed NBE Governor, Eyob Tekalign (PhD), is the third to be audited by MSE Audit Service LLP as part of the terms of the government’s agreement with the International Monetary Fund (IMF).

The statement reveals the central bank incurred a net operating loss of 428 billion Birr over the reporting period due primarily to unrealized net forex losses of 445 billion Birr arising from the translation of the NBE’s foreign currency-denominated assets and liabilities in light of the forex reforms of July 2024.

Auditors caution the NBE is exposed to massive losses when the settlements for its forex-denominated obligations come due.

“This exposure could possibly exceed the paid-up capital and General Reserve balances of the Bank when realized, necessitating a strategic intervention to effectively manage this challenge and ensure the going concern status of the Bank,” reads a statement from the auditor on “key audit matters.”

The financial report indicates that amendments made to the NBE Proclamation last year have enabled it to transfer unrealized gains and losses to revaluation reserve accounts, meaning the central bank’s general reserve balance sat at 16 billion Birr as of June 2025.

However, the revaluation reserve accounts show a deficit of 441 billion Birr, according to the statement.

“The going concern status affects NBE’s ability to meet its operational and debt obligations as they become due, and also ability to continue operating. It also affects the Bank’s capacity to fulfil its policy mandates, including maintaining stable rate of price and exchange, to foster a healthy financial system and to undertake activities conducive for rapid economic development,” the auditor cautioned.

The statement highlights a nearly tenfold increase in net operating income, which surged to 349 billion Birr from under 40 billion Birr the year prior. The central bank’s total assets also ballooned to 1.6 trillion Birr, while its liabilities—including more than 300 billion Birr owed to the IMF—doubled to two trillion Birr.

The statement notes the NBE made no direct advances to the government during 2024/25, as compared to 242 billion Birr in advances the year prior. The central bank did not print new banknotes or mint new coins over the reporting period, according to the report.

The NBE generated 47 billion Birr from interest income (mainly government bonds, foreign time deposits, and call and ordinary accounts) while it spent nearly half the amount on interest expenses, according to the financial statement.

The report highlights the central bank’s skyrocketing gold purchase expenses, which surged from seven billion Birr in 2024 to 421 billion Birr in 2025. Its gold sales balance also jumped from seven billion Birr to 315 billion Birr over the same period.

The central bank registered 57 billion Birr in losses on sales of gold and write-downs of gold commodities, according to the annual report. It notes a 17 billion Birr write down on the NBE’s gold business tied to the 15 percent premium offered by the central bank in a bid to incentivize local supply and ward off informal gold trading.

The NBE received USD one billion from the Abu Dhabi Fund in June 2019 at a fixed interest rate of three percent per year, payable semi-annually, according to the statement. In October 2023, the NBE received a new time deposit of USD two billion from the same fund, originally issued with a one-year maturity before being extended for a further year at a fixed rate of four percent per year.

A previous audited statement had revealed that the NBE received a time deposit of USD one billion from Saudi Arabia in late 2015 for a period of six years at a three percent interest rate, and additional deposit of half the amount in June 2019 after it repaid the same amount.

Abdulmenan Mohammed (PhD), a seasoned financial expert keeping a close watch on the Ethiopian financial sector, says the losses were “expected but shocking.”

“It was expected but I could not believe my eyes when I saw the 445 billion Birr loss. This is due to the debt the NBE owes Abu Dhabi and Saudi, which remain unpaid. Following last year’s currency floating, the payable loss on these unpaid debts surged exponentially. Even with minimal currency depreciation, the losses are huge,” Abdulmenan told The Reporter.

He foresees the additional cost of the central bank’s debt service will eventually fall on the shoulders of taxpayers.

“Since NBE has no assets, it cannot re-evaluate its assets to increase its capital. Hence, the only option the government has is to issue bonds to cover the losses. The NBE will issue the bonds, do the paperwork, and pay off the debt. Then the bond becomes government debt, or debt owed by the Ethiopian public,” said Abdulmenan.

He urges swift repayment.

“The losses will keep growing since the Birr is still depreciating,” said the analyst, who argues that if a similar loss had been registered by a commercial bank, “an investigation would have been underway already.”

“This is a huge loss for NBE. To make matters worse, the NBE’s capital is very small now, at 10 billion Birr. It cannot handle it. This loss has just wiped out NBE,” Abdulmenan told The Reporter.

On the other hand, the expert views the central bank’s reported gold trade losses as a result of “doing business the wrong way.”

“NBE buys local gold at a huge loss just to get access to forex. It was unwilling to remedy this, and now it’s lost 40 billion Birr,” he said.