Proclamation No. 83/1994 vests the necessary authority in the bank to perform its functions, unimpeded by any person or authority. 308 Commendably, monetary policy formulation and NBE supervisory and regulatory capacity has improved appreciably, although not to desired levels. There are concerns about effective monetary control, especially liquidity management, in Ethiopia. Information availed to the CRM suggests that the NBE faced significant challenges in maintaining effective control over the stock of reserve money, resulting in considerable fluctuations due to surges in government financing by the central bank (through an advances account) and NBE foreign exchange operations. The CRM learnt that the NBE does not itself have instruments to conduct offsetting sterilisation operations. It has, instead, relied on changes in reserve requirements and moral suasion to influence growth of the monetary aggregates. 309 The NBE identified lack of skilled manpower and institutional dynamism as critical constraints to achieving its goals. To this end, the Bank is undergoing a comprehensive restructuring plan that includes institutional reforms aimed at improving the soundness of the financial system, strengthening the bank’s technical capacity to provide timely research and policy advice to government, and enhancing the efficiency of the payment system. A business processes reengineering programme was implemented to enhance the Bank’s supervisory, regulatory and research capacity, and improve service delivery. In 2004/05, two key divisions of the Bank, namely Government Accounts, and the Cash and Foreign Exchange Inspection Division, completed the study and started implementation. Studies on all other departments of the Bank were nearing completion and the recommendations were expected to continue implementation throughout 2008/09. 310 Financial deepening remains an area of concern in the financial sector. Data from the National Bank of Ethiopia suggest that the country’s financial markets are both shallow and underdeveloped, dominated as they are by commercial banks. As discussed in more detail in Chapter Five, there is no stock exchange as yet and there are only thirteen banks, three of which are state-owned. The largest bank is the state-owned Commercial Bank of Ethiopia (CBE) which controls about two-thirds of the assets in the banking system. Non-bank financial institutions - alternatives to commercial banks - are also relatively few. Government remains a major competitor with the private sector for commercial bank resources. Therefore, the concentrated nature of the financial system, along with the significant role of the public sector in the system, partly explains the lack of competition for deposits and loans, and a distorted interest rate structure. Indicators of financial deepening, referring to increases in financial asset holdings by economic agents relative to GDP (M2/GDP) which averaged 36.7 percent over the period 2001 to 2006, declined to 32.9 percent in 2007/08, partly - 133 -