9 September 2017

Ethiopia: Central Bank Instructs Banks to Pay Shipping's Bill

Photo: James Jeffrey/IPS
Workers in Djibouti Port offloading wheat from a docked ship.

The National Bank of Ethiopia (NBE), the watch dog of financial institutions, directed all of the private banks to pay the 15 million dollars bill of the Ethiopian Shipping Logistics Services Enterprise (ESLSE) to Djibouti's company.

The money will be used to pay the debt of the Enterprise for the port of Djibouti. The order comes amidst the shortage of foreign exchange throughout the country, which put businesses in a tight situation, and a decline in export earnings and remittance - which are the primary source of foreign currency.

All of the financial institutions including a Commercial Bank of Ethiopia (CBE) sold the exchange to the state monopoly. All the private banks deposited the money to a foreign bank and received a payment from CBE. The banks were given three days to sell the foreign currency to the Enterprise from August 28, 2017.

"It is sudden and unprecedented," said one of the executives of private banks, who wished to remain anonymous. His bank was ordered by NBE to sell over a million dollar to the shipping giant.

The directive of foreign currency allocation entails all banks must sell foreign currency to a sector whose importance is very high. The banks are required to give priority to payments authorised by the central bank such as foreign loan, supplier's credits, interest, profit, dividend and excess sales of foreign airlines.

Hence, all banks are required to sell the currency collected from importers, although the current direction is high, according to a banker with almost two decades of experience.

"Even though I agree with the fact that we shared the responsibilities with CBE," said one of the vice president of a mid-sized bank. "But requesting such amount of Forex in a short time might lead to crisis."

Yohannes Ayalew (PhD), vice governor and chief economist of the central bank, disagrees.

"It is a collective responsibility of all banks whether the call was quick or not," said Yohannes. "There is no reason for asking CBE to cover all the payments."

The Forex shortage in the country has been haunting the country for years. Prime Minister Hailemariam Desalegn, in his press conference with local media nine months ago, admitted that the Forex crunch would last for the coming two decades.

This, exacerbated by a drop in export earnings put the country under foreign currency crises, according to a banking expert.

"The actions of central bank show the problem is far from over," said a banking veteran with three decades of experience, who is surprised with the incapacity of CBE to cover the 15 million dollars for the Bank. "Nevertheless, the action is logical considering the burden of CBE."

Founded seven decades ago, CBE collected 4.5 billion dollars from remittance and export during the past fiscal year.

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