Members of the European business lobby representing nearly 185 investors in Ethiopia said a crunch for local currency has transpired following Ethiopia’s transition into a market-based exchange regime. The investors voiced their concerns directly to central bank governor Mamo Mihertu, during the EuroCham Monthly CEO Networking event last week.
While the investors, who are members of the European Chamber in Ethiopia, acknowledged improved foreign currency liquidity following the reforms, they reported a new handicap with Birr shortages. Difficulties sourcing the Birr counterpart needed to open new Letters of Credit was attributed to the tightened monetary policy conditions in the latest review of Ethiopia’s economic reform program by the IMF.
The European investors also inquired about the continuation of Franco Valuta imports, businesses impacted by the reforms, and tight monetary conditions following the Governor’s address.
Mamo responded by noting that the central bank sequenced the monetary policy reform to protect low-income households, learning from other countries’ experiences. Acknowledging that the reform impacted the central bank’s balance sheet and government debt, the Governor said it was necessary to replace an unsustainable system that constrained development. He mentioned that support is being provided to affected businesses, including the provision of working capital loans. The Governor stated that Franco Valuta is restricted to merchandise traders and wholesalers but allowed—as before—to manufacturing investors.
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