Ethiopia: NBE announces major foreign exchange reforms
Metodi Tzanov
Helping finance professionals understand what is going on in Emerging and Frontier Markets
The National Bank of Ethiopia (NBE) has announced a significant reform of the country's foreign exchange regime, effective immediately. The move is part of Ethiopia's broader economic reform program aimed at restoring macroeconomic stability and promoting inclusive growth under the second phase of the country's Home-Grown Economic Reform Plan.
The reform introduces a market-based exchange rate system, allowing banks to negotiate foreign currency rates, eliminates surrender requirements to the NBE, increases foreign exchange retention for exporters to 50%, removes import restrictions on 38 product categories, and authorizes non-bank FX bureaus to trade at market rates. Additional measures include the simplification of foreign currency account rules, permission for residents to open such accounts, and the opening of Ethiopia's securities market to foreign investors. Companies in Special Economic Zones will receive special FX privileges, and restrictions on franco valuta imports and the carrying of foreign currency cash notes by travelers are lifted.
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To cushion the population from inflationary impacts, the government plans to temporarily subsidize essential imports such as fuel, fertilizers, medicine, and edible oil, and enhance financial support for civil servants and low-income beneficiaries through expanded safety net programs. Debt service relief has also been secured to maintain budgetary allocations for social and capital spending without worsening the budget deficit.
The government has secured USD 10.7bn from international partners, including the IMF and World Bank, to support these reforms, NBE said. NBE and the Ministry of Finance are coordinating closely to ensure a smooth transition and maintain economic stability. The reforms are expected to accelerate economic growth, reduce inflation, and increase foreign exchange reserves, setting the stage for a major economic take-off in Ethiopia.
The press release comes ahead of an IMF board meeting on the country, set to take place today, though in contrast to the usual process, no staff-level agreement has been announced yet. The govt reportedly expects to receive USD 3.5bn under an IMF program and USD 3.5bn World Bank support, as well as USD 3.5bn in savings from debt service suspension.