Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

ETHIOPIA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of December 31, 2006)

Status under IMF Articles of Agreement
Article XIVYes.
Exchange Measures
Restrictions and/or multiple

currency practices
The staff report for the 2005 Article IV consultation with the Federal Democratic Republic of Ethiopia states that as of March 6, 2006, Ethiopia maintained exchange restrictions relating to (a) the tax certification requirement for repatriation of investment income, (b) restrictions on repayment of legally entered into external loans and supplies and foreign partners’ credits, (c) rules for issuance of import permits, and (d) the requirement to provide a clearance certificate from the National Bank of Ethiopia (NBE) to obtain import permits. (Country Report No. 06/159)
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)n.a.
Other security restrictionsn.a.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Ethiopia is the Ethiopian birr.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe exchange rate of the birr vis-à-vis the U.S. dollar remains very stable despite minor incremental adjustments at end-April 2007. As a result, the exchange rate arrangement has been reclassified, effective October 1, 2003, to the category conventional pegged arrangement from the category managed floating with no predetermined path for the exchange rate. The official exchange rate of the birr against the dollar is determined in the interbank foreign exchange market as the weighted average exchange rate prevailing on the preceding day.
Foreign exchange bureaus are allowed to engage in all approved spot and cash current transactions.
Exchange taxAuthorized banks must observe a prescribed commission of 1.5% on sales of foreign exchange, which accrues to the NBE.
Exchange subsidyNo.
Forward exchange marketNo.
References to legal instruments and hyperlinksDirective to Transfer NBE’s Foreign Exchange Functions to Commercial Banks (FXD/07/1998); Directive on Operation of Foreign Exchange Bureaus (FXD/17/2001); Directive on Interbank Foreign Exchange Market (IBFEM/02/2001).
Arrangements for Payments and Receipts
Prescription of currency

requirements
Controls on the use of domestic currencyControls apply to the use of domestic currency for current and capital transactions and payments.
Use of foreign exchange among residentsResidents are not allowed to use foreign currencies among themselves.
Payments arrangements
Regional arrangementsEthiopia is a member of COMESA.
Clearing agreementsPayments may be made within the framework of COMESA or the African Economic Community and are eligible for tariff preferences under the AGOA.
Administration of controlCommercial banks are required to determine compliance of buyers and sellers of foreign exchange with import- and export-licensing requirements and foreign exchange regulations.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Import and export exchange licenses are required by the NBE.
On domestic ownership and/or tradeThe ownership of personal jewelry is permitted. However, unless authorized by the Ministry of Mines and Energy, the possession or custody of 50 ounces or more of raw or refined gold or platinum, or gold or platinum in the form of nuggets, ore, or bullion, is not permitted. Private companies may directly export newly worked gold, silver, and jewelry.
On external tradeLicenses to import or export gold in any form are issued by the NBE. The Directives on Gold Trading (GT/001/2005) allow the export of gold by any person having an export permit from the NBE or from designated banks. Exporters of gold must repatriate the full export proceeds. Payments for exports of gold must be in accordance with the existing foreign exchange directives. However, a person engaged in the selling of gold to the NBE or for export abroad must (1) declare the place of origin of the gold to be traded and (2) present a certificate of the purity standard of the gold issued by the competent authority.
Controls on exports and imports of banknotesOnly persons leaving Ethiopia with a return travel visa or such persons entering Ethiopia may carry with them up to Br 100 of domestic currency.
On exports
Domestic currencyYes.
Foreign currencyExcept for short-term visitors, travelers must have an authorization to reexport foreign exchange. Reconversion of birr to foreign exchange of up to the equivalent of $150 may be made without the presentation of any documentary evidence; for amounts exceeding $150, the presentation of authenticated documentary evidence is required, indicating that the equivalent amount of foreign exchange was lawfully converted into local currency.
On imports
Domestic currencyTravelers may bring in up to Br 100 in domestic currency.
References to legal instruments and hyperlinksDirectives on Gold Trading (GT/001/2005); Directive on Operation of Foreign Exchange Bureaus (FXD/17/2001); Directive to Transfer NBE’s Foreign Exchange Functions to Commercial Banks (FXD/07/1998).
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyCommercial banks may open foreign exchange retention accounts for eligible exporters of goods and recipients of inward remittances without prior approval from the NBE.
Approval requiredExporters of services may open foreign exchange retention accounts with the NBE’s approval.
Held abroadEthiopian airlines and shipping lines are also allowed to maintain accounts abroad.
Approval requiredYes.
Accounts in domestic currency held abroadNo.
Accounts in domestic currency convertible into foreign currencyNo.
References to legal instruments and hyperlinksDirective for the Retention and Utilization of Export Earnings and Inward Remittances (FXD/11/1998).
Nonresident Accounts
Foreign exchange accounts permittedThree types of nonresident accounts may be opened: foreign currency accounts, nonresident transferable birr accounts, and nonresident nontransferable birr accounts. Deposits to these accounts must be made in foreign currency. The balances in the first two accounts may be transferred freely abroad or used for international payment purposes, whereas the balance in the nonresident nontransferable birr account is to be used mainly for local expenses. Transfer of funds from foreign currency accounts and nonresident transferable birr accounts to nonresident nontransferable birr accounts does not require NBE approval.
Diplomatic bodies, members of international organizations, and foreign investors may open all three types of foreign exchange accounts. Nonresident Ethiopians and nonresident foreign nationals of Ethiopian origin may open all three types of accounts. Other nonresidents may open only nonresident nontransferable birr accounts. All nonresident accounts must be in the form of demand deposits and may be interest-bearing.
Foreign currency current accounts are subject to a minimum equivalent of $100 and maximum of $50,000, effective August 28, 2006 (previously, $5,000). Foreign currency fixed accounts are subject to a minimum equivalent of $5,000, effective August 28, 2006 (previously, $1,000), but no maximum. Foreign currency accounts are restricted to the following currencies: U.S. dollar, pound sterling, and euro, effective August 28, 2006 (previously, yen was also included). Banks may accept deposits in other convertible currencies, which have to be converted into any of the three currencies. Foreign currency accounts may be used to effect payments and transfers abroad, provided the account holder has a business license to do so.
Domestic currency accountsNonresidents other than diplomatic bodies, members of international organizations, and foreign investors may open only nontransferable birr accounts.
Convertible into foreign currencyThe balances of transferable birr accounts may be transferred freely abroad or used for international payment purposes, whereas the balance in a nonresident nontransferable birr account is to be used mainly for local expenses. Transfer of funds from foreign currency accounts and nonresident transferable birr accounts to nonresident nontransferable birr accounts does not require NBE approval.
Approval requiredApproval is required for the conversion of balances in nonresident nontransferable birr accounts into foreign currency accounts.
Blocked accountsNo.
References to legal instruments and hyperlinksDirective on Establishment and Operation of Foreign Currency Accounts for Nonresident Ethiopians and Nonresidents of Ethiopian Origin (FXD/31/2006).
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsImportation under suppliers’ credits requires prior approval of the terms and conditions of the credit, and such imports are allowed only for individuals or enterprises engaged in export activities and/or who generate foreign exchange.
Documentation requirements for release of foreign exchange for importsFinal invoices that separately show f.o.b. cost and freight charges and nonnegotiable bills of lading are required.
Domiciliation requirementImporters are required to insure their goods with local insurance companies.
Letters of creditn.r.
Import licenses used as exchange licensesYes.
OtherExchange licenses may be obtained when a valid importer’s license is presented. Applications for exchange licenses must be accompanied by information on costs and payment terms and evidence that adequate insurance has been arranged with an Ethiopian insurance company.
Import licenses and other nontariff measuresImports by federal and regional offices are exempted from the import-licensing requirement.
Negative listThe list includes items restricted for reasons of health and security.
Open general licensesImports by federal and regional offices are exempted from this requirement.
Import taxes and/or tariffsThe item-weighted average tariff rate is 17.5%. Imports are subject to a 2% withholding tax.
State import monopolyNo.
References to legal instruments and hyperlinksDirective to Transfer NBE’s Foreign Exchange Functions to Commercial Banks (FXD/07/1998); Foreign Exchange Regulations.
Exports and Export Proceeds
Repatriation requirementsProceeds from exports of gold must be fully repatriated.
Surrender requirements
Surrender to authorized dealersExporters may retain 10% of their export proceeds in foreign exchange for an indefinite period. The remaining balance may be retained for a period of up to 28 days, after which it must be converted into local currency at the weighted average daily interbank exchange rate.
Financing requirementsNo.
Documentation requirements
Letters of creditn.r.
GuaranteesAn export credit guarantee scheme is operational.
OtherAll exporters must prove to the NBE that they have repatriated 100% of previous export earnings before being allowed to export again.
Export licenses
Without quotasAll exports are processed by commercial banks, with the exception of coffee exports.
Export taxesNo.
References to legal instruments and hyperlinksDirective for the Retention and Utilization of Export Earnings and Inward Remittances (FXD/11/1998); Directive to Transfer NBE’s Foreign Exchange Functions to Commercial Banks (FXD/07/1998).
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Trade-related payments
Prior approvalApproval is given by commercial banks.
Quantitative limitsn.r.
Indicative limits/bona fide testVerification of documentary evidence is required for unloading, storage, commission, and administrative expenses.
Investment-related payments
Prior approvalAfter paying local taxes, foreign companies may remit dividends on their invested and reinvested capital in any currency. Prior approval is required for amortization of loans or depreciation of direct investments, mainly for government transactions made through the Ministry of Finance and Economic Development.
Indicative limits/bona fide testThese are subject to an assessment based on the NBE’s criteria. Verification of a contractual agreement between parties is required by the NBE.
Payments for travel
Quantitative limitsA limit on cash of up to $400 or its equivalent applies for traveling abroad on holiday or business. For government travel, the allowance amounts vary by the country of destination and foreign currency required, based on the cost of living.
Indicative limits/bona fide testYes.
Personal payments
Prior approvalYes.
Quantitative limitsThere are no limits on allowances for medical treatment and studies abroad. A foreign exchange bureau may sell foreign exchange for a bona fide medical treatment abroad on presentation of a medical board certificate, a passport, a valid exit visa, and an air transportation ticket. A foreign exchange bureau may sell up to $400 or its equivalent in cash and the balance in traveler’s checks or drafts. Additional foreign exchange may be approved for a patient being treated abroad, provided the application is supported by bona fide medical bills or hospital statements.
A foreign exchange bureau may sell foreign exchange for a bona fide tuition fee, subsistence, and other associated educational expenses on presentation of a letter of admission and evidence of a student’s attendance at an institution. Sales of foreign exchange to a student may be approved, up to $400 or its equivalent in cash or traveler’s checks. The tuition fee, subsistence, and other associated educational expenses must be paid directly through bank transfer or draft to the educational institution.
Indicative limits/bona fide testVerification by a medical board and the Ministry of Health is required for medical payments.
Foreign workers’ wages
Prior approvalYes.
Quantitative limitsForeign contractual employees of the government may take out foreign exchange, but not in excess of their net earnings during the terms of service and on final departure. However, the value of free accommodations, gratuities, accumulated leave pay, and similar benefits may not be included for remittance purposes. Other expatriate employees may take out foreign exchange on final departure, but not in excess of their net earnings.
Foreign employees of embassies, legations, consulates, and international organizations whose salaries are fully paid in foreign currency from sources outside Ethiopia may take out and/or transfer their net earnings, not exceeding the balance in their nonresident foreign currency account, nonresident transferable birr account, and/or nonresident nontransferable birr account.
Other payments
Prior approvalYes.
Indicative limits/bona fide testDocumentation is required from the overseas institute, and approval must be given by commercial banks for subscription and membership fees. NBE verification of contractual agreements between the parties is required for the transfer of legal fees, and applications are considered on a case-by-case basis.
References to legal instruments and hyperlinksDirective for Foreign Salary Remittances (FXD/10/1998); Directive No. FXD/07/2001 to Amend Directive No. FXD/09/1998.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirements
Surrender to authorized dealersTen percent of proceeds may be retained indefinitely. The remaining balance may be retained for a period of no more than 28 days.
Restrictions on use of fundsThese funds may be used for payments such as imports of goods and services, export promotion, training and education, credit repayment, and other payments approved by the NBE.
References to legal instruments and hyperlinksDirective for the Retention and Utilization of Export Earnings and Inward Remittances (FXD/11/1998).
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsYes.
Surrender requirements
Surrender to authorized dealersYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating natureControls apply to all these transactions.
Bonds or other debt securities
Purchase locally by nonresidentsNonresidents may not purchase government bonds.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
On money market instruments
Purchase locally by nonresidentsNonresidents may not purchase government treasury bills.
Sale or issue locally by nonresidentsYes.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
On collective investment securitiesThere is no domestic market for these instruments.
Controls on derivatives and other instrumentsThere is no domestic market for these instruments.
Controls on credit operations
Commercial creditsControls apply to all these transactions.
Financial credits
By residents to nonresidentsYes.
To residents from nonresidentsBanks need prior approval from the NBE to borrow funds abroad, but do not need prior approval for overdrawing their accounts with foreign correspondents or accepting deposits. Other residents need to obtain the NBE’s prior approval, and the credits should be used for export-generating investments.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsYes.
To residents from nonresidentsCommercial banks may issue guarantees on behalf of foreign banks to resident companies.
Controls on direct investment
Outward direct investmentYes.
Inward direct investmentInvestment in telecommunications and defense industries is allowed in partnership with the government. Investments in the postal service (except courier service), the transmission and supply of electricity through the Integrated National Grid System, and air transport services using aircraft with a seating capacity of more than 20 passengers are reserved for the government. All investments (except for services and transport generation and supply of electricity) must be approved and certified by the Ethiopian Investment Commission (EIC). The Ethiopian Civil Aviation Authority and the Ethiopian Electric Agency are in charge of issuance, renewal, and cancellation of investment permits for services for air transport and transmission and for the supply of electricity, respectively.
Exemptions from income taxes are granted for up to six years for new projects in manufacturing or agro-industry in which at least 50% of production is exported or at least 75% of production is used as an input for the production of export items. Expansion or upgrading of existing projects is also eligible for exemption from income taxes for two years if the expansion or upgrading increases the existing production by 25% in value and if 50% of the production is to be exported. Investment activities that export less than 50% of their production and produce exclusively for the local market are granted up to three years of income tax exemption. Imports of investment goods and spare parts for such ventures are also eligible for exemption from customs duties and other specified import levies. The EIC may decide on additional or new incentives when it deems this necessary.
Controls on liquidation of direct investmentEIC authorization is required for repatriation of capital. Registration of capital inflows with the EIC establishes the evidence of inflows required for authorization. All recognized and registered foreign investments may be terminated on presentation of documents regarding liquidation and on payment of all taxes and other liabilities. Subject to appropriate documentation, foreign investors may transfer their capital without limitation on final departure from Ethiopia. All foreign investors may also transfer abroad in convertible currency payments for debts, fees, or royalties with respect to technology transfer agreements.
Controls on real estate transactions
Purchase abroad by residentsThe purchase of personal property abroad is not permitted.
Purchase locally by nonresidentsAll ownership rights to land are vested in the state; private ownership is not allowed. Land user rights may be acquired through certificates or lease arrangements. Foreign investors are not allowed to own land but may obtain access to land through lease arrangements with the government.
Sale locally by nonresidentsYes.
Controls on personal capital transactions
Loans
To residents from nonresidentsRegulations on financial credits apply.
Gifts, endowments, inheritances, and legaciesControls apply to all these transactions.
Transfer of assets
Transfer into the country by immigrantsYes.
Transfer of gambling and prize earningsThese transactions are not allowed.
References to legal instruments and hyperlinksDirective on Registration of External Loan and Suppliers’ Credit (REL/005/2002); Foreign Exchange Regulation.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Borrowing abroadBanks may not borrow from, or enter into a guarantee agreement with, banks abroad unless authorized by the NBE; however, they do not need prior approval for overdrawing their accounts with foreign correspondents or accepting deposits.
Maintenance of accounts abroadBanks may maintain nostro accounts with their correspondents.
Open foreign exchange position limitsThe overall foreign currency position of each bank should not exceed 15% of its capital at the close of business each Friday. Commercial banks’ holdings of foreign currency notes are limited to 5% of paid-up capital.
Provisions specific to institutional investorsResidents are not allowed to invest in foreign securities.
Insurance companies
Limits (max.) on securities issued by nonresidentsYes.
Limits (max.) on investment portfolio held abroadYes.
Limits (min.) on investment portfolio held locallyn.r.
Currency-matching regulations on assets/liabilities compositionn.r.
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksForeign Exchange Regulations; Directive on Licensing and Supervision of Banking Business (SBB/31/2002).
Changes during 2006
Exchange arrangementJuly 31. Effective October 1, 2003, the exchange rate arrangement of Ethiopia was reclassified to the category conventional pegged arrangement from the category managed floating with no predetermined path for the exchange rate.
Nonresident accountsAugust 28. The minimum balance on foreign currency fixed accounts was raised to $5,000 from $1,000.
August 28. Foreign currency accounts may be opened in U.S. dollars, pounds sterling, and euros, but not in yen, as previously.
August 28. The maximum balance on foreign currency current accounts was raised to the equivalent of $50,000 from $5,000.

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