This article was added by the user . TheWorldNews is not responsible for the content of the platform.

Franco-valuta privileges spurs scrutiny

Ahmed Shide, Minister of Finance (Photo: Anteneh Aklilu)

Experts in the financial sector claim the opening up of franco-valuta has reduce remittance whilst inflating the parallel market; while the National Bank of Ethiopia (NBE) dismisses the claim on grounds that it is baseless.
Quite recently, the Ministry of Finance (MoF) had revised and eased the franco-valuta direction for the import of basic consumer goods, wheat, rice, sugar, edible oils, and instant baby milk.
It can be recalled that from the first direction introduced about a year ago, the government allowed interested importers who have foreign currency abroad to import basic goods at a minimum threshold of USD 250,000 in addition to a verification of the source of foreign currency with NBE.
However, on its latest amendment issued on April 8, MoF opened the amount and the source verification.
As experts explain, ever since the new amendment was introduced, the rate on the parallel market has been expanding against the legal market. Moreover, the financial experts have further explained that the flow of hard currency to banks as remittance has been affected because of the new type of franco-valuta condition.
A bank president that Capital spoke to said that it is obvious to spot reduction of remittance at banks, “when the government allowed the import through franco-valuta with smaller amounts of money against its rule in the past, such reduction have risen.”
However, the regulatory body dismisses the argument by stating that it is a baseless argument.
Fikadu Digafe, Vice Governor and Chief Economist at NBE, explains that it is very early to conclude as such.
“It is difficult to conclude by picking a single factor, while we are evaluating the issue in detail, but such kind of macro issues cannot be evaluated swiftly. Overall statistics does not show that the franco-valuta is affecting the foreign currency in flow,” he elaborated.
“The parallel market has not increased because of the franco valuta. Regarding remitance our document shows that it is rising rather than reducing,” he added.
Fikadu explained that the increment rate behavior in the parallel market is related with external factors.
“The war in Ukraine and global price hike tendency has increased the demand of the parallel market, while there is not ample supply on the system,” he told Capital.
The Chief Economist explicitly explained that in the case of Ethiopia, more than 90 percent of the foreign currency obtained in the parallel market is channeled for import thus when the cost of import rises because of global price hike, the demand is also increased, “this is the major reason for the increment on the rate at the parallel market.”
He added that incoming travelers insist to channel their cash on the legal system that has also reduced the supply on the illegal market.
He further reminded that at least 35 percent of the Ethiopian import is covered by the underground market.
Fikadu said that the regulatory body is waiting for the complied document with regards to the import of commodity through the franco-valuta from Customs Commission, “the informal information we are getting so far indicated that it has a positive contribution for the market in terms of price and accessibility of goods.”
Fikadu concluded that if the franco-valuta is operated properly it shall directly contribute to the economy since it is a resource inflow in kind.
Experts on the other hand argued that when the amount of value is reduced it would be difficult to control the scheme.
Recently, in a letter issued on Friday April 8 and sent to Customs Commission, shows that MoF has replaced the directive issued about a year ago.
Ahmed Shide, Minister of Finance, told Capital that the government has decided to lift the minimum requirement for the import of the basic goods that any one who lives abroad including the diaspora can import the stated commodities with any volume and value.
Ahmed added that the new decision will be applicable for at least six months, “we will review based on the circumstances but now we can say that it can be applied for the coming six months.”