Analysis of the news: the NBE amends the directive on foreign exchange management; reveals currency allocation, priorities

National Bank of Ethiopia
Photo: FBC

By Medihane Ekubamichael @Medihane

Addis Ababa, December 07/2021 – Earlier last week, the National Bank of Ethiopia (NBE) issued a new directive, amending an earlier directive in effect since October 2020. The NBE explained that the new directive would allow it to carefully manage its scarce reserves of currencies and ensure its efficiency and appropriate allocation. The directive also defined currency allocations and priorities in three categories.

The national bank in the amended directive indicated that there is a need to ensure that currencies are allocated in a transparent and healthy manner to priority economic sectors and others without opening a room for rent-seeking behavior and embezzlement. The NBE, through its recently amended directive entitled “Transparency of currency allocation and currency management”, also identified as directives n ° FXD / 77/2021 is published repealing its previous directive n ° FXD / 67/2020 similarly categorized areas where banks should prioritize when it comes to allocating foreign exchange to import items.

This guideline, which includes practices similar to previous guidelines, sets out the details that directors and officers of banks should implement when allocating currency. Like the first, this directive specifies that the allocation of foreign currency by a bank must favor three categories. However, it has amended and reworked the priority lists in categories where import items and payments are to be served on a first come, first served basis.

The new priority directive includes pharmaceuticals; like medicine, inputs for the manufacture of pharmaceuticals and laboratory reagents, while it has recently inserted inputs for the manufacture of edible oil, which was not listed in any of the three priorities previously is now placed in the first category of priorities of the new directive with with liquefied petroleum gas (LPG).

As a second priority, he put inputs for agriculture and inputs for manufacturing, including fertilizers, seeds, pesticides and chemicals. Its third priority includes a wider range of announcements, including engine oil and lubricants; agricultural inputs and machinery; pharmaceutical products; requests from manufacturing industries for the purchase of machinery, equipment, spare parts and accessories; import of nutritious baby food; construction machinery spare part for own-use construction companies with a total value not exceeding USD 50,000 and educational materials. Transfer of profits and dividends; The transfer of excess sales of foreign airlines and the sale of shares and the liquidation of companies by FDI must also be given priority in this category, implies the new directive.

Likewise, the directive states that the total foreign exchange allocated to imports listed in the three categories must not be less than 50 percent of the total foreign exchange allocated to all imports of goods and services at any time. Another notable change in the guideline is the 5 percent increase (now 15 percent) in the allocation for the first priority, the 5 percent decrease (now 40 percent) in the allocation for the third priority but maintaining 45 percent for the second priority and unlike its predecessor which amounted to 10, 45, 45 respectively.

Similar to the previous directives, the new directive stipulates that the bank is obliged to return the difference to the National Bank each month within the first five working days of the following month while requiring the return of the use of the foreign currency allocated the difference to the NBE every six months. months if the allocated foreign currency is used.

Meanwhile, Yenehasab Tadesse, director of the bank’s foreign exchange reserves department, said The journalist that the new directive would remove obstacles for banks and provide previously under-prioritized sectors with opportunities to obtain foreign exchange.

He explained that pharmaceutical inputs, edible oil inputs and fuels are listed as the first priority to alleviate the shortage of foreign exchange in these sectors, especially for oil companies which have lacked capacity. The directive typically requires each bank to have transparent and robust currency allocation and foreign exchange management procedure manuals or guidelines that show the responsibility of every employee of a bank involved in the foreign exchange transaction. LIKE