Saturday, July 13, 2024

Central Bank’s powers reinforced in draft reform bill, including sole authority over franco-valuta imports

By Muluken Yewondwossen


The draft proclamation establishing the National Bank of Ethiopia (NBE) has reinstated the direct advance limit that the federal government can take from the bank. It has also set a time limit for the executives and board members serving in the central bank. The proposed bill would also grant the NBE sole responsibility for overseeing franco-valuta imports, revoking the previous powers held by the Ministry of Finance.

The draft bill, which was presented to parliament on Thursday, June 20, includes several changes to the previous proclamation no. 591/2008, which was issued sixteen years ago.

The draft bill brings back the provision stating that the government can borrow from the central bank.

Before Proclamation No. 591/2008 superseded the Monetary and Banking Proclamation No. 83/1994, three separate central bank proclamations were amended. These proclamations contained provisions that limited the amount of money the central government could borrow from the financial sector regulatory body and specified the repayment period.

However, the 2008 proclamation opened up access to funds from the NBE for the government, which analysts believe was a significant factor in the country’s unprecedented rate of inflation.

According to Article 27.2 of the draft proclamation, the National Bank may provide temporary overdrafts to the government on a cash flow facility for a duration of no longer than 12 months. “These temporary overdraft facilities shall not exceed 15% of the average annual general government domestic revenue of the previous three fiscal years.”

Sub-article three states that a temporary overdraft made to the government must be repaid upon maturity and cannot be rolled over. It further adds that “Any such temporary [overdraft facilities] shall bear an interest rate calculated at the monetary policy rate as determined by the National Bank.”

The same article, sub-article four, states that the National Bank cannot make further overdrafts in a subsequent financial year unless the amounts due in respect of the outstanding overdrafts have been fully repaid within the maturity period.

However, sub-article five states that in the event of a force majeure, the government may request the National Bank for an advance or loan beyond the limit provided under this article. “Any such additional advance or loan shall be without prejudice to the National Bank’s objective of ensuring price stability, comply with the government’s limits on public debt, be limited in time as determined by the National Bank, and remunerated at a market interest rate.”

Sub-article six clearly defines force majeure as an unexpected public health issue, natural disaster, drought, or a general state of emergency as promulgated by relevant law, or significant external economic developments that negatively impact government revenue.

The draft proclamation also sets a term limit for the governor and vice governors, stating that they cannot serve for more than six years but can be renewed for another term.

Similarly, the draft proclamation states that a board member shall hold office for a period of six years and may be eligible for reappointment for one more term.

Regarding remuneration, the draft proclamation states that it will be consistent with the comparable average rate in the financial sector in the country.

It also states that the authorized capital of the National Bank is 20 billion birr, with a minimum paid-up capital of 10 billion birr, increased from the current 500 million birr.

Moreover the draft proclamation has revoked the Ministry of Finance’s (MoF) authority to allow franco-valuta imports, transferring this responsibility solely to the central bank.

According to the draft bill, the NBE will now be in charge of overseeing franco-valuta imports, with the amended Regulation No. 88/2003 – which previously permitted the MoF to approve such imports – set to be abolished.

Specifically, Article 39.5 of the draft proclamation states that “goods shall be imported on a franco-valuta basis, subject to the terms, circumstances, and conditions determined by the National Bank’s Directive.”

The proclamation also includes a clause exempting the central bank from all property taxes, including urban house tax and urban land rent. This tax exemption comes despite the Addis Ababa City Administration’s previous requests for the NBE to fulfill its obligations regarding these levies.

However, the recent proclamation has clarified that the central bank will not be responsible for the specified taxes and levies, solidifying its exempted status.

The transfer of franco-valuta authority to the NBE and the central bank’s tax-exempt status are significant changes that are expected to impact Ethiopia’s import regulations and the financial operations of the country’s monetary authority.

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