The National Bank of Ethiopia (NBE) has announced a significant relaxation of the country’s foreign exchange restrictions, as Addis Ababa continues to pursue a programme of economic and market liberalisation.
Under changes announced on 11 February exporters will now be allowed to retain 100% of their foreign currency earnings indefinitely in designated “retention accounts”, while banks will be permitted to issue payment cards linked to foreign currency accounts. This will allow consumers in Ethiopia to make overseas payments and conduct e-commerce transactions more easily.
Other reforms include abolishing the minimum $100 requirement to open a foreign exchange savings account, in a move designed to broaden access to these services. Ethiopians will also be permitted to make outbound remittances up to the value of $3000 for family support.
Investors seeking to repatriate their dividends will be entitled to remit the net profit or dividend abroad, subject to submitting the necessary documents to their bank. By allowing investors to cash in on their investments and take their money out of Ethiopia, this potentially removes a major barrier to foreign investment.
Reforms follow currency free float
In July 2024 the NBE, Ethiopia’s central bank, announced it would be freely floating the Ethiopian birr, introducing a “competitive, market-based determination of the exchange rate [to] address a long-standing distortion within the Ethiopian economy”.
This decision was made partly as a result of negotiations with the International Monetary Fund (IMF) and World Bank, which offered to provide a total package worth around $10.7bn to promote macroeconomic stability in Ethiopia and ensure the country could fulfil its external debt obligations. The IMF made this conditional on Addis Ababa moving to a market-based currency regime.
In the first trading session after the NBE’s announcement, the value of the birr against the US dollar dipped, then partly recovered. These losses have continued: since being freely floated, Ethiopia’s currency has now lost more than 60% against the greenback.
The central bank said that “since the July 2024 comprehensive macroeconomic reform, the National Bank of Ethiopia has been removing current account restrictions to ensure the development of the foreign exchange market” and added that the latest reforms would “further enhance the market”.
Reducing bottlenecks
Mekdes & Associates, a law firm based in Addis Ababa, brands these developments as “significant reforms”.
“By removing approval layers, expanding permissible users of foreign currency accounts, and introducing greater flexibility in areas such as forward contracts, guarantees, and advance payments, the Amendment Directive will reduce procedural bottlenecks and shorten transactions costs and timelines,” the firm says.
While the firm notes that the success of the reforms in boosting foreign investment flows will depend on the capacity of commercial banks to facilitate greater financing demands and cross-border payments flows, they are optimistic that “these measures indicate a continued move toward a more facilitative foreign exchange regime.”
End of FX rationing?
Bernard Laurendeau, managing partner at consultancy firm Laurendeau & Associates, says that the reforms are indicative of a change in mindset on the part of the central bank.
“The NBE’s directives represent a definitive “de-risking” of the Ethiopian economy, signalling the end of the era of FX rationing and administrative bottlenecks,” he says.
“By granting service exporters 100% retention and green-lighting international payment cards, the central bank is finally moving from a “policing” role to an “enabling” one.”
“This shift is about restoring the agency of the private sector. For the first time in decades, the “forex crunch” is being treated not as a scarcity to be managed, but as a structural inefficiency to be solved through transparency and capital mobility.”