A National Bank of Ethiopia directive from April 2011 already requires the 14 private banks in the Horn of Africa country to buy five-year bills equal to 27 percent of each loan given out. The Washington-based lender in September said that requirement was onerous and suggested lowering it so more credit would be available to banks.

The new limit on the maturity of loans “will likely require private banks to purchase more five-year NBE bills at a very low interest rate of 3 percent,” IMF Resident Representative Jan Mikkelsen said in an e-mailed response to questions yesterday.. “This will further reduce private banks’ ability to extend loans to customers.”

Ethiopia, Africa’s second-most populous nation and the world’s fifth-biggest coffee grower, is struggling to fund a five-year industrialization plan that ends in mid-2015. The state-led program is designed to diversify the economy away from reliance on agriculture, which is 43 percent of output now.

Money raised from the central-bank bills will be used for “financing of priority-sector projects,” according to a copy of the NBE order seen by Bloomberg.

The government partially liberalized its financial system in 1993 after more than a decade of communism. It has yet to allow foreign banks or free trading of the birr currency, and the state-owned Commercial Bank of Ethiopia holds two-thirds of all bank deposits.

Monetary Impact

About 61 percent of new bank deposits worth 10 billion Ethiopia birr ($535 million) were used to buy central-bank bills in the fiscal year ending July 7, 2012, according to Addis Ababa-based research company Access Capital.

The central bank’s Deputy Governor of Monetary Stability Yohannes Ayalew and Director of the Change Management and Communications Directorate Alemayehu Kebede did not answer calls to their mobile phones seeking comment yesterday or today.

The order also reduces the amount commercial banks have to keep with the central bank to 5 percent of deposits from 10 percent. Lenders will have to invest the released money into the central bank’s securities, Mikkelsen said.

“It is important to note that NBE plans to absorb the injected liquidity for all banks,” he said. “As a result, there will be no immediate monetary impact.”

Ethiopia maintains a tight monetary policy to stem inflation, which slowed to 12.5 percent in January after averaging more than 30 percent in the previous fiscal year starting July 7, 2011, according to the Finance Ministry. Growth slowed to 8.5 percent in the same period from 11.4 percent the year before