New regulation forces LC to be same as invoice

The National Bank of Ethiopia (NBE) is going to implement a new scheme for approving letters of credit (LC). Banks are supposed to use the given price of items when they allocate hard currency.
The new scheme that banks are expected to adopt is that the LC amount that individual or companies request needs to be equivalent to the actual price of the imported items.
Currently any importer who wants hard currency for their import is not obliged to submit the price of the imported items at exporting countries’ markets.
Banking experts said that if an individual wants to import a vehicle that may cost USD 10,000 they would not be obliged to request the vehicle purchase price.
Under the current rules individuals or companies who want hard currency can get it from banks and the balance then is filled by different sources mainly from parallel sources or black markets.
A week ago NBE provided an introduction for bank officials and relevant officers about the new scheme, according to sources.
According to the new scheme banks must follow the Ethiopian Revenue and Customs Authority (ERCA) price rate for imported items that ERCA is using for tax and duty calculation.
Sources said that the price list of imported items brought from ERCA has already been distributed to the banks.
Experts said that the new scheme will be applied for imported items and that their price is already listed at the ERCA document. According to the information from ERCA over 5,900 items are imported from abroad.
The hard currency crunch that the country faces has forced the central bank to apply new rules and regulations regarding the management of hard currency at financial institutions.
The new scheme is targeted to cut the black market and illegal systems and force importers to use only the financial institutions as hard currency sources.
Experts at private banks said that the new NBE rule will contribute to increasing banks’ hard currency earnings and reducing illegal remittances, which are one of the major reasons for illicit finance flow.
Even though the issue has not been studied, importers are using finance from outside sources, who collect hard currency secured from illegal money transfers, for their imports, according Teklewold Atnafu, Governor of NBE, who spoke about the issue during his recent appearance at the Budget and Finance Affairs Standing Committee of the Parliament.
He explained in detail about this illegal hard currency market by giving examples.
He told the standing committee that the problem will be solved after the application of the new regulation.
“We are undertaking a study to stop these kinds of transactions,” he told parliament members. “We will follow the decision of the government,” he added.
According to recent statement, NBE, ERCA and the Ministry of Trade are undertaking a study to tackle under invoicing.
The government stated that most of the actual goods imported are not in par with the hard currency amount allocated by banks.
It has raised concerns of illegal hard currency sources and tax evasion.