Sunday, October 1, 2023
BusinessForex retention for all exporters lowered to 20%

Forex retention for all exporters lowered to 20%

Banks can retain 10 percent of forex secured from exporters, remittance

The central bank drafted a new directive lowering the amount of foreign currency retained by exporters to 20 percent, two times lower than the requirement applicable since September 2021.

The new directive also downsizes the share of banks from forex earnings to just 10 percent. Effective as of January 06, 2021, it enables retention account holders to use their retained forex for imports of any good without any restriction.

A measure which has already been communicated to all commercial banks beginning from last week, it increased the surrendered amount of forex secured from remittances, exports of goods and services and NGO’s transfers to 70 percent, an increase fromthe 50 percent surrender requirement.

The new directive comes as the government’s demand for forex surged due to the humanitarian crisis caused by the war and the economic woes it brought. It also coincided with the surge in budget deficit caused by the conflict, projected to reach 266 billion birr if the parliament legislate 122 billion birr in supplementary budget, which has been approved by the Council of Ministers last month.

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“Considering the existing macroeconomic situation, I believe the measure is understandable,” said Fahmi Abdulmejid, an exporter of Khat.

Not everyone however seems to be on the same page over the impacts of the new requirement.

“I understand the central bank needs the forex critically right now. However, the lowering of the surrender requirement would have undesirable consequences by discouraging exporters that use the forex they retain to import goods for their manufacturing business or other establishments,” said Anwar Ahmed, a consultant with 17 years of experience in providing advisory services to exporters and importers.

Some executives at commercial banks have also expressed their fear over the repercussion of the new requirement.

“Retaining 10 percent might not be enough to cover our administrative expenses incurred when we provide service for holders of retention account,” said a senior executive of one of the private banks, adding, the rule must be temporary.

The new directive demands commercial banks to send aggregate balance of forex held under retention account on a monthly basis.

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