Three priority lists are introduced under the new directive
A new directive demands commercial banks not to allocate more than 50 percent of their foreign currency to items not listed under the new priority list of the National Bank of Ethiopia. The directive partly targets reducing the inflationary pressure by averting the shortage of imported goods that are uneasy to produce locally.
Drafted by the central bank, the new directive intends to enhance the efficient and proper allocation of the country’s scarce forex resources. Expected to come into effect as of December 01, 2021, the new rule introduced three categories of priority items in an effort to bring transparency in the allocation of foreign currencies for businesses.
The first priority includes pharmaceuticals, inputs for edible oil plants and petroleum products, while inputs for farmers and manufacturers are under the category of the second priority list. The third priority includes motor oil, capital goods, which used to get priority based on first-come first-served basis since 2017.
“We have incorporated inputs for edible oil suppliers in the priority list due to its importance to stabilize the market,” said Yenehasab Tadesse, Director for Foreign Exchange Monitoring & Reserve Management at the central bank.
The new rule has been welcomed by representatives of edible oil manufacturers who annually require almost a billion dollars to utilize over 60 percent of their production capacity.
“With the setting up of many refinery plants in the country, it will solve the existing edible oil shortage as the forex crunch has been a roadblock to import inputs like crude oil from abroad,” said Addise Garkabo, General Manager of Edible Oil Manufacturing Industries Association.
The new directive also demands commercial banks allocate at least 50 percent of their forex resources to priority items. It further states that of the total amount allotted to priority items, 15 percent of forex resources need to be earmarked for first priority items, while allotting 45 percent for the second and the remaining 40 percent for the third. If banks were to be unable to allocate half of their forex resources to items listed under the three priority categories, they would be obliged to surrender the difference at prevailing exchange rate for the NBE.
However, the banks are given the right to use the remaining half of the forex that they have mobilized from different sources for importers of items that are not listed under the three categories.
Contrary to the rule applied in the last four years, the new directive requires importers of non-priority items to deposit 50 percent of their forex demand in blocked account at the time of application. Banks are obliged to pay the minimum interest rate, which now stands at seven percent, on the deposit.
The directive also empowers Presidents of commercial banks to give special approval if manufacturing companies and agri-businesses face production interruption because of damage to machineries or lack of spare parts. This will be instrumental in solving challenges faced by players in the sectors, according to Yenehasab.
Additionally, the Governor and the Vice Governor for Monetary Cluster of the NBE are given the right to give special forex approval for financial institutions, the federal government, regional authorities and city administrations by reviewing their cases separately.
The directive also adjusted the fine imposed on commercial banks that fail to comply with the new rules. While it was 10,000 Birr (USD 222 based on current market price) in the previous directive, it is now adjusted to USD 5,000 for each violation.
