News Analysis: NBE amends foreign exchange management directive; reveals foreign currency allocation, priorities

By Medihane Ekubamichael @Medihane

Addis Abeba, December 07/2021 –  Earlier last week, the National Bank of Ethiopia (NBE) issued a new directive, amending an earlier directive in use since October 2020. The NBE explained that the new directive would enable it to carefully manage its scarce reserve foreign exchange and ensure its efficient and proper allocation. The directive also laid out foreign exchange allocations and priorities in Three categories. 

The national bank in the amended directive indicated that there is a need to ensure foreign exchange is allocated in a transparent and sound manner to priority and other economic sectors without opening a room for rent seeking behavior and malpractice. The NBE through its newly amended directive titled “Transparency in Foreign Currency Allocation and Foreign Exchange Management” , also identified as directives No. FXD/77/2021 is issued repealing its predecessor directive No. FXD/67/2020 has similarly categorized which sectors the banks should prioritize when it comes to allocation of foreign exchange for import items.

This directive, which includes practices similar to previous directives, sets out the details that bank board directors and executives need to implement while allocation of foreign exchange. Like the former, this directive states that the allocation of foreign currency by a bank shall give priority for three categories. However, it has amended and reshuffled the priority listings within the categories where import items and payments are to be served on a first come first served basis.

The new directive put as a first priority comprises pharmaceuticals; like medicine, inputs for manufacturing of pharmaceuticals and laboratory reagents, while it has newly inserted inputs for manufacturing of edible oil, that has not been listed in any of three priorities previously is now set in the first category of the priorities in the new directive along with liquefied petroleum gas (LPG).

As a second priority it put inputs for agriculture and inputs for manufacturing including fertilizer, Seed, Pesticide and Chemicals. Its third priority arrays broader spectrum of listings including motor oil and lubricants; agricultural inputs and machineries; pharmaceutical products; manufacturing industries requests for procurement of machineries, equipment, spare parts, and accessories; import of nutritious food for babies; spare part for construction machineries for own use construction companies whose total values not exceeding USD 50,000 and educational materials. Profit and dividend transfer; transfer of excess sales of foreign airlines and sales from share and liquidation of companies by FDI are also to be prioritized under this category, the new directive implies.

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

Similar to previous directives, the new directive states that the bank is obliged to surrender the difference to the National Bank every month within the first five working days of the next month while imposes surrender of utilization of allocated foreign currency the difference to NBE every six-month in the case of utilization of allocated foreign currency. 

Meanwhile, Yenehasab Tadesse, Director of the bank’s foreign exchange reserve directorate, told The Reporter that the new directive would eliminate barriers to banks and provide previously under prioritized sectors opportunities to get foreign exchange.

He explained that pharmaceutical inputs, edible oil inputs and fuels are listed as the first priority to mitigate shortage of foreign currency in those sectors, especially for oil companies that have been running under capacity. The directive generally requires each bank to have transparent and sound foreign currency allocation and foreign exchange management guideline or procedure manuals which shows the accountability of each employee of a bank involved in the foreign exchange transaction. AS