AmendmentTrade

Transparency in Foreign Currency Allocation and Foreign Exchange Management (As Amended) (Directive No. 861/2021)

National Bank Of Ethiopia861/2021

Summary

This directive amends existing regulations on foreign currency allocation and management to ensure transparency, efficiency, and sound practices, detailing priorities for imports, responsibilities of banks and their management, internal audit procedures, prohibitions, and penalties. It replaces Directive No. 53/2020.

Who's affected

Banks operating in Ethiopia, including their boards, executive management, and employees involved in foreign exchange transactions, as well as importers and other entities involved in foreign currency exchange.

Action required

Banks must review and update their internal foreign exchange management guidelines and procedures to comply with the requirements of this amended directive. Importers should ensure they adhere to the new allocation priorities and deposit requirements.

Key points

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  • Foreign exchange is a scarce resource requiring careful and transparent management.
  • Priority is given to essential goods, manufacturing, and agriculture inputs for foreign currency allocation.
  • Banks have significant responsibilities in managing foreign exchange operations, reporting, and internal controls.
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    • Specific prohibitions are in place to prevent misuse and ensure proper allocation of foreign currency.
    • Penalties for non-compliance by banks and importers are outlined, including fines and blacklisting.

Requirements

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  • Banks must develop and implement overall foreign exchange operations management guidelines in line with NBE directives.
  • Boards of banks are responsible for reviewing foreign exchange exposure, ensuring adequate resources, and ensuring adherence to established rules.
  • Executive management must maintain records, reconcile accounts, and ensure proper reporting and internal controls.
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    • Internal audit must conduct semi-annual audits and surprise checks.
    • Foreign currency allocation must prioritize essential goods and inputs for manufacturing and agriculture.
    • Banks must allocate at least 50% of total foreign currency for imports listed in Article 6.1, distributed among first, second, and third priorities.
    • Banks must surrender unutilized or underutilized foreign currency allocations to the National Bank.
    • Special approvals can be granted by bank CEOs or NBE officials under specific circumstances.
    • Foreign exchange sales on demand are permitted for specific categories like non-resident accounts and invisible payments.
    • Banks must use the central web-based IT system for registration and approval of foreign currency requests.
    • Importers must adhere to the number of proforma invoices allowed and block a percentage of the value in Birr for non-priority sectors.
    • Banks must submit weekly returns of their Foreign Exchange Exposure to the National Bank.

Rights and permissions

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  • Banks have the right to receive foreign currency from exporters for imports according to proper procedures.
  • CEOs of banks are authorized to give special approval for importing spare parts for manufacturing or agricultural sectors in cases of production interruption.
  • The Governor or Vice Governor of the Monitory Cluster of the National Bank may grant special priority approval for certain entities.
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    • Items listed under Article 6.4 are exempted from registration and shall be served on demand.
    • Banks may allow extension of validity of L/C or Purchase Order before shipment of goods for good cause.
    • Bank CEOs may approve import permits for goods shipped before approval or after expiry of L/C or purchase order under specific conditions.
    • Banks may allow item quantity changes or unit price increases up to 5% under certain conditions.
    • The Governor or Vice Governor of the Monitory Cluster of the National Bank may grant waivers for prohibitions.
    • Importers are entitled to a saving interest rate on the blocked Birr amount until foreign exchange is approved.

Restrictions

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  • Banks shall not allocate foreign exchange from an exporter to import the same exporter's business outside the proper procedure.
  • Banks shall not approve purchase orders under CAD without collecting the full Birr amount, except for manufacturing sector imports.
  • Banks shall not approve L/C applications without collecting a minimum of 30% of the L/C value in cash upfront, with exemptions for the manufacturing sector.
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    • Banks shall not release CAD documents without effecting payments to suppliers.
    • Banks shall not issue permits for goods shipped before approval, after expiry of L/C, and purchase orders.
    • Banks shall not register import requests without a deposit of 50% of the proforma invoice value for non-priority lists.
    • Banks shall not process import applications for approved foreign currency exceeding 15 working days from notification.
    • Banks shall not register more than two proforma invoices, including those on the waiting list.
    • Banks shall not attach foreign exchange allocation with any other services.
    • Banks shall not accept requests for changes in items after proforma invoice registration, except under specific conditions.
    • Importers shall not lodge more than two proforma invoices in one bank.
    • Importers other than priority sectors must block 50% of the proforma invoice value in Birr.

Penalties

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  • Any bank failing to comply with the directives shall be subject to a fine of USD 5,000 for each violation.
  • Individuals violating or obstructing the implementation of the directives shall be liable under Article 26, sub-article 2 of Proclamation No. 591/2008.
  • Importers failing to comply with the directives will be blacklisted for six months up to two years.

Objectives

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  • To ensure efficient and proper allocation of foreign exchange as a scarce resource.
  • To guarantee transparent and sound foreign exchange allocation to priority and other economic sectors.
  • To prevent rent-seeking behavior and malpractice in foreign exchange transactions.
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    • To require banks to have transparent and sound foreign currency allocation and management procedures.
    • To establish clear accountability for bank employees involved in foreign exchange transactions.

Organizations

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  • National Bank of Ethiopia
  • Commercial Banks operating in Ethiopia

Legal references

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  • National Bank of Ethiopia Establishment Proclamation No. 591/2008, Article 20(3)
  • National Bank of Ethiopia Establishment Proclamation No. 591/2008, Article 27(2)
  • National Bank Establishment (as amended) Proclamation No. 591/2008, Article 26(2)
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    • Directive No. 861/2021
    • Directive No. 53/2020
    • Directive “Setting of Indicative Minimum Price for Selected Import Item”
    • “Retention and Utilization of Export Earnings and Inward Remittance” Directive
    • Directive No. FXD/17/2001
Original sourcehttps://justice.gov.et/en/directives/transparency-in-foreign-currency-allocation-and-foreign-exchange-management-as-amended-directive-no-861-2021/
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