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Almost a year after Ethiopia claimed an excess of foreign reserve was the reason for galloping inflation, the country faces a shortage of hard currency once again Capital learnt. Business people claim that they are unable to open a Letter of Credit (LC) in order to carry out their business internationally.

Capital sources in the financial industry confirmed the presence of a hard currency shortage in the country. They deny what many business people are claiming that processing was stopped for letters of credit by the National Bank of Ethiopia, the financial sector regulating arm of the government.

“We are processing letters of credit for selected sectors of the economy on a priority basis since there is a foreign currency shortage. But there is no directive that bans processing it,” said an executive in the banking sector on condition of anonymity.

Though the inflow of hard currency to the country in the form of remittances and other sources has not been made public so far, the country earned USD 3.1 billion from exports last fiscal year.

“For a country to face a foreign currency shortage, the inflow of hard currency into the country in the form of remittances, export earnings, grants, loans, tourism and domestic expenses of international organizations should be surpassed by imports. Of course, the issue of capital flight also needs to be accounted for,” argue an economist Capital talked to.

In the 2009/10 fiscal year Ethiopians working in other countries contributed nearly 790 million dollars to the nation’s economy. That figure increased to nearly 1.5 billion dollars in the 2010/11 budget year showing s 87.6 percent surge.

In 2010/11, remittances went up dramatically when the international transfer policy was reformed and other regulations were introduced to make it easier for money to flow into the country. The government of Ethiopia depreciated the purchasing power of the birr against a basket of major foreign currencies on average by 20 percent almost two years ago and  raked in USD 2.7 billion from exports alone that year.  When added to remittances that meant USD four billion flowed into the country that year.