As banks compete for scarce dollars, concerns grow over the transparency and effectiveness of Ethiopia’s forex auctions.
Ethiopia’s commercial banks are facing a severe liquidity crisis, worsened by recent policy changes and financial sector inefficiencies. The National Bank of Ethiopia’s (NBE) strict credit cap and high demand for cash have left banks struggling to meet withdrawals and sustain lending. The shift to a market-based foreign exchange system has further drained liquidity, making it harder for banks to issue loans and increasing financial distress.
Amid this crisis, NBE’s recent forex auction has sparked concerns among experts, particularly about its timing and lack of transparency. With limited cash available, banks are being forced to prioritize forex bidding over lending, potentially worsening the credit shortage.
“Cash is disappearing from the banking system as businesses struggle to transact. Some banks are even buying local currency, birr, at an interest rate,” said Getachew, an economist and public policy expert. “The first auction after floating the birr was necessary to show stability, but this one raised serious questions.”
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