Ethiopia’s Treasury Bill Market Broadens as Private Investors Step In to Fund Government Borrowing

Ethiopia’s domestic debt market is undergoing a structural transformation as private investors increasingly participate in treasury bill (T-bill) auctions, reducing the government’s historical dependence on central bank financing. New data from the Ethiopian Economics Association indicates that the number of private bidders has expanded significantly, pointing to stronger confidence in government securities and the gradual development of the country’s capital markets.

During the second quarter of the 2025/26 fiscal year, treasury bill demand accelerated sharply, with total bids reaching 149.1 billion Birr. This represents a substantial quarterly increase and reflects a shift in investor behavior as market participants seek relatively secure, interest-bearing instruments amid improving macroeconomic conditions.

A notable trend is the growing participation of non-bank investors, whose holdings of treasury bills have expanded considerably over the past year. The broader investor base suggests that government securities are no longer dominated solely by commercial banks and public institutions, but are increasingly attracting private sector liquidity. This diversification is widely viewed as a positive step toward strengthening domestic financial markets and improving price discovery mechanisms.

The shift coincides with a policy realignment by the National Bank of Ethiopia and the Ministry of Finance of Ethiopia, which have moved toward market-oriented deficit financing. Since 2024, authorities have limited direct central bank lending to the government, instead encouraging the use of treasury securities to mobilize domestic savings. This transition reflects broader macroeconomic reform efforts aimed at reducing inflationary pressures typically associated with monetary financing.

Macroeconomic indicators suggest that the policy adjustment may be contributing to greater price stability. Inflation declined to single digits by the end of 2025, supported by improved agricultural output and reduced reliance on central bank advances. Moderating price pressures, combined with higher yields on government securities, appear to be reinforcing investor appetite for treasury instruments.

Yields across treasury bill maturities have trended upward, particularly for longer-dated securities, indicating stronger demand for medium-term investment options. Higher returns on 364-day bills relative to short-term instruments signal increased investor willingness to lock in capital for extended periods, reflecting improving expectations about macroeconomic stability.

Government issuance also expanded during the quarter, with most offered securities successfully absorbed by the market. Banks continue to play a significant role, but non-bank investors are accounting for a growing share of purchases, contributing to the expanding stock of outstanding treasury bills.

Overall, the evolving treasury bill market illustrates Ethiopia’s gradual transition toward a more market-based financial system. A deeper domestic debt market could improve fiscal flexibility, reduce dependence on direct monetary financing, and provide new investment channels for private capital. If sustained, the trend may support broader financial sector development and strengthen macroeconomic stability over the medium term.

source EBR