Building blocks: Ethiopia’s path to a municipal bond market

Stakeholders from across Ethiopia’s financial sector convened for an inaugural workshop on the viability of municipal bonds on 5 June 2025 in Addis Ababa. Genesis Analytics, in conjunction with our partners Bourse Consult, presented a scoping study examining whether these subnational debt instruments could emerge as a credible financing mechanism for local infrastructure projects.

Ethiopia is exploring innovative funding tools, with municipal bonds under close scrutiny. Our research pinpointed the legal, institutional and market prerequisites necessary to facilitate subnational bond issuance, a potential milestone in the country’s financial evolution.

Genesis and Bourse Consult also delivered technical training to participants, covering the capital markets ecosystem and the place of municipal bonds within this ecosystem, the typical municipal bond lifecycle, and the broader supporting factors needed within the capital markets to support a successful municipal bonds market.

Recommendations from the study include:

1: Continue development of a robust legal and regulatory framework to enable municipal bond market development

Though authorisation for municipal bond issuance exists in Ethiopian law, the market lacks clear supporting regulations around topics like borrowing limits or permissible uses of municipal bond proceeds. To strengthen market confidence and transparency, authorities should implement a comprehensive framework that delineates issuance criteria, debt ceilings and spending safeguards, ensuring bonds serve their intended purpose as instruments for subnational development.

2: Extend federal bond maturities to benchmark municipal debt

Ethiopia should continue efforts to lengthen its sovereign yield curve through issuance of longer-date federal government debt. The extension of such a sovereign yield curve is an important foundational aspect in providing pricing clarity for municipal issuers and fostering deeper capital markets in general.

3: Develop a secondary market for federal bonds to boost municipal debt liquidity

Creating an active secondary market for federal bonds would enable real-time price discovery and improve liquidity, providing a stronger benchmark for municipal bond pricing and fostering investor confidence.

4: Build investor capacity to assess municipal bond risks

Developing a viable municipal bond market requires targeted efforts to strengthen investor understanding and risk assessment capabilities. The Ethiopian Capital Markets Authority (ECMA) should implement structured capacity-building programmes that combine financial education with direct engagement opportunities between regional governments and potential investors.

5: Enable credit rating access to strengthen municipal bond issuance

The ECMA should utilise its existing licensing framework to approve reputable regional or pan-African credit rating agencies, ensuring rigorous assessments of subnational borrowers’ creditworthiness. Transparent, independent ratings will be critical in building investor confidence and pricing risk appropriately.

In the longer term, ECMA could foster the growth of a domestic credit rating ecosystem, enhancing local expertise while reducing reliance on external agencies.

6: Strengthen BOFEDs understanding of municipal bond markets

To prepare regional finance bureaus for potential bond issuance, Ethiopia should implement targeted training programmes introducing BoFEDs to capital market fundamentals and municipal bond mechanics.

7: Support regions in developing bankable projects for bond financing

To facilitate successful municipal bond issuance, Ethiopia should provide technical assistance to regional governments in creating credible project pipeline, such as through a pilot technical assistance programme that deploys financial experts to work directly with regions.

Drawing on comprehensive analysis of regulatory frameworks and regional capabilities, these proposed interventions address both immediate barriers and foundational market requirements. Successful implementation will require coordinated efforts across institutions.

The proposed approach creates necessary preconditions for a functional municipal bond market through four interconnected pillars: establishing clear issuance guidelines, developing sovereign debt benchmarks, creating secondary market liquidity and building institutional capacity.