The National Bank of Ethiopia Issued a New Directive (Directive No. FXD/70/2021, New Directive) governing the retention and utilization of foreign currency earnings from export and inward remittance. Previously the area was regulated by the Directive No. FXD/66/2020 (Old Directive).
The basic changes introduced by the New Directive are highlighted below:
- Retention Account “A” and Retention Account “B” has been eliminated: under the Old Directive Exporters of Goods and Services and Recipient of Inward Remittance (Beneficiaries) were allowed to credit 30% of their foreign currency in Account A and hold for an indefinite time. 70% of the earning will be credited to Account B for 28 days only. The earnings were allowed to be utilised by the beneficiary for the importation of raw materials or other permitted items relating to the export business. Under the New Directive these two kinds of accounts are eliminated and only one Forex Retention Account is permitted.
- Mandatory Surrender is established: under the New Directive all the beneficiaries are required to surrender 30% of the foreign currency earning to the commercial banks. Previously there was no surrender requirements applicable to the Beneficiaries.
- The Amount of Proceeds to be Retained is reduced: the Beneficiaries are further required to sale 55% of the foreign currency earning to the bank immediately on the day of receipt at the prevailing buying exchange rate. The Beneficiaries can deposit 45% of the proceeds in retention account for an indefinite time. Note that this 45% shall be calculated once the 30% surrender is made on the total earnings.
- The requirements for utilization of the foreign currency has been changed: under the Old Directive the foreign exchange under retention accounts can only be used to finance direct business relating to the export and some other permitted payments. Under the New Directive the Beneficiaries are allowed to use the foreign exchange for the importation of goods and services without restriction as long as it has a business license to import these goods and services.
- A New Penalty is imposed on Banks: any bank that violates any provision of the directive is liable to pay 5,000 USD for each violation.
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