AmendmentTrade

Transparency in Foreign Currency Allocation and Foreign Exchange Management (Directive No. 53/2020 as Amended) (Directive No. 776/2021)

National Bank Of Ethiopia776/2021

Summary

This directive amends and consolidates transparency in foreign currency allocation and foreign exchange management, outlining responsibilities of banks' boards and executive management, internal audit procedures, foreign exchange allocation priorities, prohibited actions, reporting requirements, and penalties for non-compliance. It aims to ensure efficient and transparent management of scarce foreign exchange resources.

Who's affected

Banks operating in Ethiopia and importers seeking foreign currency.

Action required

Banks must ensure their internal procedures align with these directives and submit required reports to the National Bank of Ethiopia. Importers must adhere to allocation priorities and application procedures.

Key points

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  • Foreign exchange is a scarce resource requiring careful management.
  • Banks have responsibilities for developing and enforcing foreign exchange management guidelines.
  • Specific priorities are set for foreign currency allocation to imports.
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    • At least 50% of foreign currency must be allocated to essential imports.
    • Several actions are prohibited for banks to ensure transparency and prevent malpractice.
    • Strict reporting requirements are imposed on banks.
    • Penalties include fines, blacklisting, and liability under the Establishment Proclamation.

Requirements

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  • Banks must develop and implement foreign exchange operations management guidelines.
  • Boards of directors must ensure monthly review of foreign exchange exposure and adequate resources for evaluation and control.
  • Executive management must maintain sufficient records, daily foreign exchange records, and daily foreign exchange exposure information systems.
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    • Internal audits must be conducted semi-annually.
    • Banks must give priority to specific import items for foreign currency allocation.
    • Banks must allocate at least 50% of foreign currency to essential imports.
    • Banks must surrender unused allocated foreign currency to the National Bank of Ethiopia.
    • Banks must use the NBE's web-based IT system for foreign currency request registration.
    • Importers are prohibited from lodging foreign currency requests with more than one bank.
    • Banks must submit weekly returns of their Foreign Exchange Exposure to the National Bank of Ethiopia.

Rights and permissions

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  • Banks can apply for special approval from the Bank President for importing spare parts in case of production interruption.
  • Special priority approval can be given by the NBE Governor or Vice Governor for banks' own use imports and government requests.
  • Items listed under foreign currency sales on demand are exempted from registration.
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    • Unit price increases up to 5% may be entertained by the bank.
    • The NBE Governor or Vice Governor may grant waivers for prohibitions.

Restrictions

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  • Banks shall not allocate foreign exchange from exporters to import business outside the proper procedure.
  • Banks are prohibited from approving purchase orders under CAD without full Birr payment, except for the manufacturing sector.
  • Banks are prohibited from approving L/C applications without collecting a minimum of 30% of the L/C value in cash upfront, with exceptions for the manufacturing sector.
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    • Banks are prohibited from releasing CAD documents without effecting payments to suppliers.
    • Banks are prohibited from issuing permits for goods shipped before approval or after expiry of L/C and purchase order, with limited exceptions.
    • Banks are prohibited from declining registration requests except as stated.
    • Banks are prohibited from processing import applications for approved foreign currency exceeding 15 consecutive days from approval.
    • Banks are prohibited from registering more than two proforma invoices.
    • Banks are prohibited from attaching foreign exchange allocation with any other services.
    • Banks are prohibited from accepting requests for changes in items after proforma invoice registration.

Penalties

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  • Any bank failing to comply shall be subject to a fine of USD 5,000 for each violation.
  • Violators shall be liable under Article 26, sub-article 2 of the National Bank of Ethiopia Establishment Proclamation No. 591/2008.
  • Importers failing to comply will be blacklisted for six months to two years.

Objectives

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  • To ensure efficient and proper allocation of foreign exchange.
  • To promote transparency and sound management of foreign exchange.
  • To prevent rent-seeking behavior and malpractice in foreign exchange transactions.
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    • To require banks to have transparent foreign currency allocation and management guidelines.
    • To enhance accountability of bank employees involved in foreign exchange transactions.

Organizations

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  • National Bank of Ethiopia
  • Banks

Legal references

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  • Article 20(3) and Article 27(2) of the National Bank of Ethiopia Establishment Proclamation No. 591/2008
  • Directive No. 53/2020 as Amended
  • Directive No. 776/2021
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    • Directive No. FXD/17/2001
    • Directive ‘Retention and Utilization of Export Earnings and Inward Remittance’
    • Directive ‘Setting of Indicative Minimum Price for Selected Import Item’
    • Directives No. FXD/62/2019
    • Directives No. FXD/67/2020
Original sourcehttps://justice.gov.et/en/directives/transparency-in-foreign-currency-allocation-and-foreign-exchange-management-directive-no-53-2020-as-amended-directive-no-776-2021/
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