Exporters can now use their foreign currency retention account to import different items, according to a new directive issued by the National Bank of Ethiopia (NBE). The previous directive limited the account holders to using their forex only to finance direct business and effect current payments.

The directive, which was amended after three years, gives freedom to exporters and inward remittance recipients to use 30pc of the foreign currency they generate to import pharmaceutical products, agricultural inputs, chemicals and manufacturing inputs. They can also import motor oil, baby formula, edible oil, wheat and sugar.

The amendment is aimed at encouraging exports, according to Yinager Dessie (PhD), governor of the central bank.

"We find it necessary to reconsider and incentivise eligible exporters," he said. "The former procedure had been a source of disappointment to many forex account holders."

Twelve years ago, the central bank had issued a directive allowing the regular recipients of foreign exchange remittance and exporters of goods and services to open retention accounts at commercial banks. However, the directive restricted the account holders to using the foreign currency only to finance direct business and effect current payments such as the import of certain goods, promotion and subscription fees, and the settlement of external loans.

Before the last amendment that was made three years ago, recipients of foreign currencies were opening two types of retention accounts where they keep up to 10pc of their foreign currency earnings for an indefinite period. A separate account holds the remaining 90pc and account holders have 28 days to use the foreign currency, at which time it is converted to Birr.

The last amendment relaxed the restriction by raising the indefinite holding retention figure to 30pc and reducing the other account to 70pc. However, it limited the account holders to using foreign currency only for specific purposes. The latest directive has removed this and enabled the exporters to use the foreign currency to import items that are selected by the central bank to get priority in foreign currency allocation.

This directive came onto the scene at a time when the nation's foreign currency reserve is depleted. As of the third quarter of the last fiscal year, the gross foreign reserve coverage stood at 1.6 months of imports of goods and services of the current fiscal year. This is down from the 2.4 months of coverage of the foreign currency reserve during the previous fiscal year.

Abdulmenan Mohammed, a financial expert with two decades of experience, appreciates the central bank's move in allowing account holders to use their foreign currency for imports. However, he recommends the government reconsider the 28-day deadline to convert the foreign currency into Birr.

"If the government genuinely wants to encourage exports," said Abdulmenan, "it should extend it to a reasonable time such as three months."