Ethiopia Removes Foreign Exchange Permit Requirements, Retaining Only Two Exceptions

A letter from Eyob Tekalign, (PhD) State Minister of Finance, has effectively removed restrictions on Franco Valuta imports while maintaining prohibitions on only two categories: internal combustion engine automobiles and intelligence or security equipment. The Franco Valuta scheme allows goods to be imported into the country without the need to access foreign currency from the Ethiopian banking system.

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The sweeping macroeconomic reforms announced three weeks ago under the Green Exchange Directive hinted at this change. While the move is seen as a crucial step in simplifying import procedures as part of the broader reform package that floated the Birr, the opacity of the Franco Valuta scheme has often raised concerns about the source of the foreign currency used.

Importers will no longer be obligated to secure Letters of Credit, Cash Against Deposit, advance payment, or other payment modalities typically required in import procedures. This decision also relieves Ethiopian banks, which have precarious foreign currency positions, from having to provide foreign currency to importers.

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In the three weeks since the Birr was allowed to be determined by market forces, its value against the dollar has plummeted nearly 100%, dropping from around 57 Birr to nearly 107 on official exchanges. The latest move by the Finance Ministry is expected to mitigate inflationary spikes that could result from a sharp drop in the aggregate supply of goods.

Two years ago, in response to a spirited effort to control rapidly rising inflation, Ethiopia allowed the importation of wheat, rice, sugar, edible oils, and instant baby milk without requiring an exchange permit from the National Bank of Ethiopia.

The government’s position on the importation of internal combustion engine automobiles has remained consistent, reflecting its aim to reduce the fuel import bill and promote a green future. Importers are also prohibited from bringing in vehicles with internal combustion engines for private use.