Savings in Ethiopia: Mobilisation, Instruments and Measures for Improvement

Abstract

Years after filltlllcial refon". the rallge affillallcial assets lI\'(Iilabie il'stil/limilt'd,
The exis fillg ;lIstmmellts are af short-matl/rity amI lIot acce,f,fible 10 1I siglliJicmll
propor/iun of tile popullltiolZ. PensiOIl ([nd provitJelll fl/llds 011(1 insurance
companies f ace limited alternative illvel'tmellf ollt/etl'. Par/ly (IS (l rel'lIf/ of tliese,
Ille sUlle of domestic savillgs ill Ethiopia is sl/ch that there is {f wide domestic
illl'('.lfmel/f·savillg gap, Besides, only a sri/ali IJrOponioll is beillg illlermediated,
COII ,\'i(/eriIlS Ilial fi llanciaf illtermediaries wul capital marke f,~ fl rc generally
superior ill channeling resources, Ihe small proportion of savillgs beillg
i1llermedialed {flld absellce of developed capilal market iml)ly IIwt (ll/oell/ioll is
illef!icielll.
71u! paper argues that Ihere are strong cases for the fol/owing savillgs promotillg
mea,SIIres as bOI" esselll;a/ and 1I,~eflll ill Ethiopia.
(i) Improvillg accessibility of exislillg iillallcial ;/ZStntmell/l'; (ij) Il/cremillS the
range of savings instruments allailable - e.g. introdllctioll of gOllemmell1 bOlld,~ of
longer matllrity, mlll/icipali/)' bonds, dollar-denomillated gOl'emmem bonds;
affolVillg f oreigll currellcy accollnts 10 Ethiopians ill diaspora; estabfi,fllment of a
corporale bOlld market; rllral insurallce; (iii) Improvillg Ille refums 0/1 fil/allcial
assels through tat exemptions, improved alternative illvestmelll olltlets for pel/sioll
omi i/lSl/ral/ce fUlids (e.g. engagemelll of insurance compallies in lease finallcillg
alld equity plIrticiplIlioll iI/ MFls), professiollalmllnagemellt of SSA fllllds: (iv)
I The paper was originally prepared as part of the Long term Strategy and the Shon run
M ::c r~conometric Modelling Project of EPPD, MoFED, and has benefited from comments
by participants of the workshop organized uy Mor-ED, Comments from anonymous
referees led to important improvements, Errors and omissions that may remain arc those of
the author.