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The National Bank of Ethiopia (NBE) the regulatory body of financial institutions, has taken over the allocation of foreign currency to importers applying through letter of credit (LC) or other transfer requests made to their banks in view of allocating the limited amount of international currencies. The practice that has been put in operation recently with regards to all commercial banks, both private and state owned is said to be a move to ensure proper allocation of the much needed currency.
Ethiopia has recently been facing hard currency shortage that has become a serious hindrance for business. Due to the shortage, importers have to wait for months to get approval for their foreign exchange application. Meanwhile, bank employees and officials were allegedly accused of abusing foreign exchange applicants requesting to open an LC for their imports. According to sources, due to the shortage and the alleged misdemeanours accusations, NBE took over the role of giving the final approval to foreign currency applications presented to the commercial banks, a new procedure which was not applicable previously.
In relation to the shortage of hard currency, the black market exchange rate shot up in the past few months, which was almost similar with banks’ rate before the scarcity occurred.
Currently, the black market rate has reached 19.50 birr for a dollar, while the bank rate is at 18.56 as of Friday.
Such control by the central bank existed during the Derg regime but has been suspended for the last two decades, since the advent of private banks, according to sector experts.
The hard currency shortage which some relate to the economic growth the country is registering has remained a severe problem especially for the industry sector whose operation is based on imported parts or raw materials. Even though the business community complained about the dire shortage of foreign currency, Prime Minister Hailemariam Desalgn refuted the reports stating that the country has enough reserve of hard currency during his recent deliberation at the Parliament responding to questions raised by MPs.
In the past fiscal year the amount of export, particularly coffee has shrunk than the targeted amount. Experts said that the decline in export in some way contributed for the shortage of the hard currency.
Ethiopia earned 3.1 billion dollars from export in the last budget year (2011/12); a 15 percent growth from the 2010/11 budget year. However, last budget year’s performance was roughly 70 percent of the target set for the budget year which was 4.6 billion dollars.
Blaming the dismal performance of coffee export during the last budget year, the Ministry of Trade has envisioned to collect 5 billion dollars in revenue for the 2012/13 budget year; a 130 percent growth from the preceding year.