Central bank regulators have instructed commercial banks to open letters of credit (LCs) for agricultural inputs and equipment importers with suppliers’ credit. It is a rare move in an economy wracked with a chronic shortage of foreign currency.

Supplier credit is a business practice that allows importers to buy products needed now, paying for them later under the terms and conditions agreed upon by the seller. Buyers are required to settle the bill within a year. Exporters and manufacturers have been enjoying a similar preferential treatment since last year, permitted to import machinery on credit as long as the procurement is directly tied to their primary business.

Fikadu Digafe, vice governor of the National Bank of Ethiopia (NBE), believe the decision will encourage investment in the agriculture sector.

Importers of agricultural machinery have been exempted from value-added tax (VAT) applied to the sale of their products since 2020. Officials of the Ministry of Finance granted domestic tractor assemblers, which import knocked-down parts, a similar privilege three months ago.

Yet, few agricultural inputs, equipment and machinery have been imported in recent years due to the foreign currency shortage. Close to 4,100 tractors were imported over the past two years, bringing the number to more than 21,200. The country used to import 40,000tn of agrochemicals annually; however, volumes have dropped by more than half.

The central bank’s decision comes as commercial banks struggle with forex mobilisation.

For Sirak Yifru, head of trade finance at Nib International Bank (NIB), the decision is a promising start to addressing the foreign currency crunch.

“The forex shortage means importers are having a hard time opening letters of credit,” he told Fortune.

Girum Tsegaye, president of Berhan Bank, says the decision will shorten the time importers have to wait to gain access to forex.

The forex crunch has been a spectre haunting the economy for years. Record-high export revenues of 4.1 billion dollars last year have not amounted to much in the face of import bills 10 billion dollars larger. Regulators have attempted to boost forex income by permitting forex transactions inside industrial parks and enabling foreign currency account holders to negotiate with banks on buying rates.

Nonetheless, forex remains a scarce resource even for industries identified by the central bank as a top priority.

An economy starved of forex has been the driving force behind skyrocketing rates in the parallel (black) market. A dollar was exchanged for 92 Br in the black market last week. It is nearly 40 Br higher than the official exchange rate at commercial banks and more than double the unofficial rate from two years ago.