Nov 8 , 2024
Ahmed Shide, minister of Finance, has banned merchandise imports under the Franco Valuta scheme, a system that allows importers to use their foreign currency without involving the central bank. The ban, excluding machineries and industrial raw materials, comes as the federal government wrestles with a foreign exchange shortage and mounting trade imbalances.
Officials argue that while the Franco Valuta scheme was initially intended to address forex shortages by facilitating essential imports, it has become a conduit for unregulated transactions undermining efforts to stabilise the Birr.
In the four years beginning in 2018, Franco Valuta transactions accounted for an estimated 2.1 billion dollars annually, of which over 60pc was linked to non-priority goods. The federal government has raised four billion Birr from taxes collected from imports made through franco valuta.
Importers have reportedly exploited the scheme to flood the market with non-essential items like luxury cars and electronics, exacerbating the country's chronic forex shortage.
Ethiopia's foreign exchange reserves have fallen to precarious levels, covering barely 1.7 months of imports, according to the IMF.
The parallel-market exchange rate has surged to 140 Br for a dollar, nearly 15pc above the official market, revealing waning confidence in the local currency.Critics, however, warn that the abrupt decision could choke supply chains and push more traders into the informal market. Industry insiders anticipate a rise in the price of consumer goods as traders scramble to adapt to the new rules.
The Ministry of Finance remains resolute. Minister Ahmed stated in his directive issued today, November 8, the government's commitment to "preserving the integrity of the financial system" and prioritising forex allocation for strategic imports. He offered a two-week window for merchandise imports made through the scheme to finalise customs procedures.
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