The National Bank of Ethiopia (NBE) emphasizes that it will never revise the 70 percent hard currency surrender directive unless the global situation and inflow disbursement shows improvement.
Yinager Dessie, Governor of NBE, signaled that the central bank does not have any intentions to revise the directive that was amended in the beginning of the year unless and otherwise situations are improved.
“The main motive of the amendment of the directive is to alleviate pressures occurring from external and internal sources,” he told Capital.
He cited that the price of petroleum and fertilizers has climbed to more than double.
“In the past, our expense was not more than USD 500 million to import fertilizer but that narrative has changed as we consumed USD 1.2 billion during the past budget year,” the Governor explained.
He added that in relation to the Russia-Ukraine conflict, price spikes had occurred on basic commodities to which government is work thoroughly on to ease the burden on Ethiopian consumers.
“To mitigate the inflation, we have procured edible oils, wheat and we are on the process of buying sugar. The price of these products have spiked in relation to the Russia-Ukraine conflict that has gradually impacted the hard currency resource of the country. So to manage the burden, banks have to share the foreign currency with NBE,” Yinager said, adding, “In general the foreign currency that flows to NBE is allocated for import petroleum, buying of medicine and other basic needs or to settle the foreign debt.”
“We are importing strategic commodities from the foreign currency we secured,” he explained, adding, “the main thing is that if the inflow disbursement, which is loan and assistance, shows improvement and the global situation becomes stable, the export earnings will increase and the hard currency distribution will be at ease.”
The retention and utilization of export earnings and inward remittances directives no. FXD/79/2022 which was amended and made effective on January 6, on its article 4.1 stated that banks are required to surrender 70 percent of the foreign currency earnings from export of goods and services, private transfer and NGO’s transfer to the NBE.
Article 4.2 stated that exporter of goods and services and recipients of inward remittance shall have the right to retain 20 percent of their export earnings in foreign currency indeterminately in a retention account after the deduction of 70 percent surrender requirement from the total earnings. It added that the remaining 10 percent shall be surrendered to the respective bank.
The prior directive that was revised early last budget year gave a right for NBE to take half of the foreign currency earnings and the remainder to exporters and banks.
However, experts argued that the retention directive has affected the export business since it does not motivate both exporters and financial firms in engaging and expanding their businesses.
In the past budget year unlike the previous experience, the government’s inflow of foreign currency which mainly comes from global partners in the forms of assistance and loan has almost dried out. Nonetheless, the debt settlement commitments have been concluded smoothly.
Following the conflict eruption in the northern part of the country, global partners, mainly western nations or organizations driven by them froze their pledged funds to put pressure on the central government against national interest.