NBE fixes hard currency allocation

National Bank of Ethiopia (NBE), the financial institution regulatory body, has placed a fixed percentage on the hard currency allocation for private banks on the letter of credit (LC) approval for priority areas.
The central bank’s new directive that replaced the 2016 directive stated that 40 percent of the LC’s must go to the imports of the priority sector.
Based on the new directive private banks are responsible for allocating 40 percent of the hard currency for the imports of the priority sector.
The 2016 directive stated that the priority imported items shall get preferential benefit when they need access to hard currency. The currency then will be allocated on a first come first serve basis.
The reset of the imported items and services that are not mentioned on the priority lists can also access the hard currency.
The previous directive did not mention about the rate or percentage of hard currency allocation for these priority areas.
The import of petroleum, fertilizer, agricultural machines, inputs, spare parts, medicine and related items, industrial inputs and accessories, supplement food for babies, are mentioned as a priority for the hard currency allocation.
Experts in the financial industry said that the new directive will give more benefit for the priority sectors. While the business sector mainly those who engage in import and wholesale may not get hard currency as was the previous trend, according to experts.
“The directive may have additional benefits for the industry, which was previously complaining about a hard currency shortage,” an industry actor said.
Recently, NBE issued a directive forcing private banks to transfer 30 percent of their hard currency to the central government.
“They have to share the burden of the Commercial Bank of Ethiopia, a state owned,” Teklewold Atnafu, the central bank governor recently said.
In relation to the hard currency shortage the central bank replaced the rule on LC allocation to tackle unfair distribution of hard currency and revoke illegal acts.
Both the 2016 rule and the revised one strongly mentioned that the banks’ management, board and IBD officers must undertake business carefully.
Even though there is an increased demand for hard currency, the foreign currency earnings, particularly the export sector is not growing as expected, making foreign currency access very scarce.