Ethiopia Turns to T-Bill Rollovers as Government Pushes Longer-Term Debt

Meta description: Ethiopia is increasingly refinancing maturing T-bills as it targets 329 billion Br in domestic borrowing and pushes longer-term government debt.

Ethiopia’s federal government is increasingly using new Treasury bills to refinance maturing debt, as it shifts toward market-based domestic borrowing while seeking to reduce its reliance on short-term securities.

The Ministry of Finance issued no T-bills in May or June 2026 after the fiscal deficit fell close to zero during the two months.

“We evaluate the sale every three months, and for the two months we didn’t need to sell,” Jonse Gedefa, fiscal policy head at the Ministry of Finance, told Fortune.

But subsequent issuance has increasingly served to replace maturing bills rather than finance entirely new spending. With maturities ranging from 28 to 364 days, the Treasury must regularly return to the market to refinance outstanding paper.

“To balance it all, we encourage the long-term T-bill,” Jonse said.

The shift comes as the government plans to borrow 329 billion birr domestically in 2026/27, equal to 14.1 percent of its 2.34 trillion birr federal budget. Debt-service payments are projected at 542.1 billion birr, or 23.2 percent of total spending.

The 329 billion birr target is separate from the 269.17 billion birr in T-bills scheduled for issuance in the fourth quarter of 2025/26. The figures belong to different fiscal years and are not cumulative.

Nor does gross T-bill issuance equal new borrowing. When new securities replace maturing ones, auction proceeds can largely refinance existing debt rather than increase the government’s net debt by the full amount issued.

Yields fall as demand stays strong

The refinancing strategy is unfolding alongside a sharp decline in T-bill yields.

Between July 8 and August 19, the weighted-average yield on 28-day bills fell from 6.932 percent to 3.516 percent, according to National Bank of Ethiopia auction data.

The 91-day yield dropped from 8.340 percent to 4.564 percent, the 182-day yield from 9.516 percent to 5.671 percent, and the 364-day yield from 12.394 percent to 8.720 percent.

Demand, however, remains strong.

At the August 19 auction, investors submitted 132.83 billion birr in bids against an offer of 36.85 billion birr.

The strong demand gives the Treasury room to refinance maturing securities at lower rates, potentially reducing its interest costs. But lower yields also reduce the return available to banks, pension funds and other investors holding government paper.

For now, government securities remain attractive to financial institutions because of their relatively low credit risk and liquidity.

Treasury seeks to keep yields below 16pc

The government also wants to prevent T-bill rates from rising above the NBE’s 16 percent policy rate.

“We don’t want to increase the interest rate over that,” Jonse said.

The NBE raised its policy rate from 15 percent to 16 percent in July 2026 and subsequently removed the cap on private-sector credit growth.

For the Treasury, keeping T-bill yields low helps contain the cost of refinancing. But it also means the government must maintain sufficient investor demand as returns decline.

That balance becomes more important when the Treasury is refinancing debt frequently.

Longer maturities offer an alternative

The government’s push for longer-term securities is intended to reduce that refinancing pressure.

Longer-dated government debt would allow the Treasury to lock in funding for several years rather than repeatedly refinance bills within months. It could also help establish a domestic yield curve, providing benchmark rates that banks and companies could use when pricing longer-term loans and securities.

Mere’ed Fikereyohannes, chief executive of Pragma Capital and an investment adviser, recommended extending government-security maturities to two to five years.

He also said pension funds could diversify into other assets following the removal of mandatory investment requirements for government securities.

The Ministry is expected to issue a directive governing T-bill and government-bond issuance by the end of October 2026. The directive is expected to introduce a more predictable auction calendar and support the development of longer-term government securities.

A shift in how government debt is managed

The government’s strategy reflects a broader change in Ethiopia’s domestic debt market.

With the fiscal deficit targeted at 1.2 percent of GDP in 2026/27, the Treasury’s challenge is increasingly about managing the cost and maturity of existing debt, not simply raising money to cover a budget gap.

Short-term T-bills offer flexibility and strong demand, but frequent maturities create recurring refinancing needs. Longer-term securities could reduce that exposure while giving the financial system clearer benchmark rates.

The challenge will be building investor appetite for longer maturities without pushing borrowing costs higher.

With 329 billion birr of domestic borrowing planned for 2026/27, how Ethiopia manages that transition will increasingly shape both government financing costs and the development of its domestic capital market.

Source: Addis Fortune