In what appears to be a nervous move by members of Ethiopia’s ruling party, Tigrai People’s Liberation Front (TPLF) and the well-connected elite in the wake of the disappearance of Ethiopian dictator Mekes Zenawi, big money is being transferred overseas. The situation is so bad that even the pro-TPLF journal, The Reporter, is forced to admit “capital flight”.
CBE suspends opening Letter of Credit
AUGUST 11, 2012 (The Reporter) — The Commercial Bank of Ethiopia (CBE) has suspended opening letters of credit (L/C) to businesses after the much-talked about three-month export foreign currency reportedly depleted in a one-year time or so. CBE, the largest buyer of foreign currency from the National Bank of Ethiopia (NBE) and the biggest generator of foreign currency from its international banking department and from remittances, suspended opening L/C for two to three months, according to sources from the bank.
The country’s largest bank currently opens L/C only for basic items such as petroleum and medicine, according to bank sources, while it is not now known when it will resume to provide the service for its customers and businesses.
Shortage of foreign currency has hit banks for a couple of months now, while the reason for the depletion has left private bankers in the dark, according to prominent bankers in the sector.
“The sad part is that we are notified the there is shortage of foreign reserve unprecedentedly,” said a banker who opted to remain anonymous. “The situation should have been known and disclosed earlier before it became critical. And it is very difficult to identify how the shortage was created, except for guessing or setting possible scenarios. There are bankers who say the problem has got to do with capital flight, both formal and informal. Yet while the informal capital flight has got to do with over invoicing and under invoicing, it will not have an effect on the country’s foreign reserve. But the formal does.”
Sources assert that there is a tendency for the reserve in forex offices to make their way or shift to the black market, which involves a huge volume of transaction.
Some also claim that NBE’s control over foreign currency reserve and transactions is not as stringent as other regulations the governing bank imposes on commercial banks.
The shortage of foreign currency has also made the come-back of the long and overdue queue at private commercial banks seen three years ago when the foreign reserve reached an alarming low in less than one year’s export.
The daily foreign currency auction between NBE and the commercial banks came to a halt for a month now.
2 thoughts on “Commercial Bank of Ethiopia suspends letters of credit to stop capital flight”
This is probably an early sign that the Ethiopian economy is going to crash . African diplomats are going to start using gaari to commute to the AU . Just watch .
This illegal capital flight occurs when people start lacking confidence in a country’s economy. For example In May 2012 the scale of Greek capital flight in the wake of the first “undecided” legislative election was estimated at €4 billion a week and later that month the Spanish Central Bank revealed €97 billion in capital flight from the Spanish economy for the first quarter of 2012 because of lack of confidence in their economy’s strength.