Ministry of Trade and Regional Integration (MoTRI) stresses that despite Franco-Valuta privileges being applied with the aim of stabilizing the market, it has not performed as expected.
As Kumneger Ewnetu, Public Relation Director at MoTRI explains, Franco-Valuta has not reeled in the success as expected and has further not been able to stabilize the soaring inflation. To this end the Ministry in a bid benefit from the privilege has been working with the stakeholders to increase items.
A Franco-Valuta privilege is basically a permission to import goods on which foreign exchange is not payable following the strict payment procedures implemented by banks and regulated by the National Bank of Ethiopia (NBE). On April 2022, the government had decided to lift the minimum requirement for the import of basic goods to which anyone who lives abroad including the diaspora can import the stated commodities at any volume and value.
Food inflation stands high in Ethiopia despite policy measures to stabilize prices. Beside Franco-Valuta, as Kumneger indicated the Ministry is also considering to apply duty privileges.
Back in April 2022, the Ministry of Finance had informed the Ethiopian Customs Commissions that the privileges have been lifted for the import of the basic goods. The move at the time aimed to narrow the supply-demand deficit on basic food items as well as tackling the increasing inflation.
In order to alleviate the problems of inflation, Ethiopia has allowed individuals with USD 250 000 to use Franco-Valuta to import food consumables such as cooking oil, wheat, rice, milk and flour by verifying the source of the foreign currency with the NBE.
The Ministry said the decision was made after a request from the diaspora community to lift the restrictions and allow them to play their part in addressing the inflation.
The permit is said to stay in effect for six months starting from April. Officials had been indicating to review the decision based on the circumstances.
Experts in the financial sector claim the opening up of Franco-Valuta has reduced remittance whilst inflating the parallel market. The financial pundits 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.
Despite the government’s plans to stabilize the market and narrow the supply-demand deficit on basic food items, the inflation rate has almost doubled in the past few months. The impact of the coronavirus pandemic and Russia’s invasion of Ukraine added to price risks, with a shortage in foreign currency needed to import fuel and fertilizer weighed heavy on the Ethiopian birr.
However, inflation rates in June dropped a little to 34% from 37.2% in May, according to data from the Central Statistics Agency of Ethiopia. Food-price growth slowed to 38.1% from 43.9%, while non-food inflation showed slight change at 28.4%.