- The Bank of Eritrea has issued new regulations regarding foreign currencies and imports. According to the new restrictions, all transactions in Eritrea are now to be settled in Nakfa, the national currency, and importations are made more complicated as an authorisation first must be achieved from the Bank.
Eritrea is facing an ever-growing deficit of foreign currencies, which for a long time has affected national citizens. Limited means of importing oil forced authorities to introduce a fuel rationing coupon system already in September 2003. Although the fuel crisis has eased somewhat the last few months, petrol is still expensive and hard to get.
In yet another move to address Eritrea's declining level of foreign currency reserves, the Bank of Eritrea this month issued a new Legal Notice on "Regulations regarding Foreign Currency Deposit Accounts, Settlement for Domestic Transactions, Currency Remittance and Exchange, […] and Importers." The decree restricts all transactions involving foreign currencies, including all imports.
The Bank's new legal notice states that unless the Bank of Eritrea specially authorises receipt in foreign currency, "all transactions in Eritrea shall be settled in Nakfa." This also means that transactions from Eritreans in the Diaspora to their families in Eritrea from now on only are paid out in Nafka, and according to the still overvalued official exchange rate.
In a small concession to traders and others doing international transactions, however, the Bank has slightly altered the state-defined exchange rate. The official exchange rate has per decree been increased from 13.50 to 15.00 ERN per US dollar. The Nafka however still remains overvalued.
Also all kinds of imports to Eritrea are affected by the new regulations. Importers - individuals as well as institutions - will now be obliged to complete forms prepared by the Bank of Eritrea. Goods for which such forms have not been completed "shall not be allowed into the country," according to the Bank's decree.
The new regulations will deteriorate the business climate in Eritrea even more. State control is reaching a close-to-total level and the new decrees by the Bank of Eritrea give no guarantees against arbitrary decisions by the Bank. Import licences may be refused. The business climate in Eritrea is already noted by a great dominance of state companies and tight business licensing procedures, which require the submission of business plans.
The increasing economic isolation and the almost total halt in development aid from donor countries has put the financial situation of Eritrea in a critical position. The IMF for years has warned Eritrean authorities against its "unsustainable" monetary and foreign exchange rate system. According to the Fund, Eritrea's monetary and exchange rate policy is "entirely subordinated to the large financing needs of government."
The new import and foreign currency regulations also affect the many humanitarian organisations and UN agencies working to address the effects of the drought in the country. The World Food Programme (WFP) is paying close attention to the new regulations, which also will affect its food imports and cash transactions.
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