The National Bank of Ethiopia (NBE) revised the diaspora account holders which is highly anticipated to cripple the parallel market besides expanding the remittance.
Experts in the banking industry said that the new decision of NBE mainly affects the import of non-essential goods import like luxury goods and vehicles and allow very few players to import such products than the existed trend.
The NBE revised directive of ‘establishment and operation of foreign currency account for non-resident Ethiopians and non-resident Ethiopian origin directive no. FXD/69/2021‘ that replaced the directive of FXD/64/2019 stated that the beneficiary shall only use the foreign currency for the import of priority items like agricultural and manufacturing input, medicine and related items, nutrition for babies, education materials, chemicals and some other basic commodities services.
The national bank’s directive prohibits foreign currency acquired either from forex bureaus or foreign exchange held locally from crediting and/or open a foreign currency account. Experts in the sector argued that one of the major sources for crediting the diaspora account is the illegal foreign currency market.
Experts on international banking sector explained that currently the Diasporas are using the special account to import small items like vehicles, ceramics, liquor, chewing gum and others with small amount. However, under the new directive foreign account holders are supposed to import priority goods that needs higher foreign currency rather than importing the products it used to import.
According to one of the banking sector leaders, under this circumstance the diaspora would not have that much amount to import priority products so it will stop using the foreign account that leads to discouraging the black market, which currently has a significant gap compared with legal market in terms of exchange rates.
“Significant amount of the diaspora account is credited by the foreign currency that collects from illegal markets or by those who received the sum for their foreign trip from banks only to recirculate it back to banks. Due to that the black market will lose one of its major buyers which totally discourage the illegal market,” he expressed foreshadowing what is to come following the effective decision of NBE as of March 8.
A bank expert expressed his suspicion that the diaspora secure foreign currency from banks for foreign trip but may not travel at all or not use it on their foreign trip but prefer to be credited on the foreign account so as to present themselves with better opportunities.
One of the senior bankers recommended the government to introduce digital currency which will enable to control and trace those who tried to be involved in the illegal currency market with regards to credit on their foreign currency account and to know further the amount they use (if) they used it on the expenditure of their foreign trip.
Experts said on the contrary the very few players that have foreign currency access will control the market of the products that is rejected under the new directive of NBE.
“Products like cars, cloth, or other non-crucial goods will be imported by very limited individuals or companies that have the opportunity to use foreign currency for any purpose,” they say and pretend it will inflate the unessential products.
Some of the sector experts mentioned the newly amended directive, ‘retention and utilization of export earnings and inward remittances directive no. FXD/70/2021’ that became effective as of March 9 by replacing directive no. FXD/66/2020; for those who may have better opportunity to access foreign currency and import whatever they like.
The directive that was issued this week revised the former directive and said exporters of goods and services, as well as recipients of inward remittances, shall have the right to retain only 45 percent of the export earnings and remittances in foreign currency after the deduction of 30 percent surrender requirement from the total earnings.
The previous directive has been given a right for foreign currency generators to use anytime they want to import products from abroad, which is now increased to 45 percent for the import of any products they want.
The amended directive no. FXD/70/2021’ in contrary with the oldest directive give full right for banks to surrender at the prevailing buying exchange rate immediately, while the directive no. FXD/66/2020 had given right foreign currency earners to use it within 28 days for related business import of goods.
Experts said the retention and utilization of export earnings and inward remittances directive has given better advantage of the percentage of using of the foreign currency for earners to import any products so they may fill the gap that the diaspora account holders loss. “I expect exporters will have big role to import non-essential products because they have additional 15 percent share to use their foreign currency earnings,” one of the import export business players said.