A note: this article was developed before the announcement that two un-named individuals have been appointed to the NBE’s Monetary Policy Committee.
The National Bank of Ethiopia’s January 2026 directive requiring banks to treat Ethiopian Customs Commission (ECC) indicative prices as reference benchmarks when opening letters of credit (LCs) for selected imports has sparked debate. Critics warn of disruptions, higher costs, and disputes. Yet the evidence, including elsewhere, strongly supports the NBE’s position: this is the correct policy. It directly targets chronic under-invoicing, tax evasion, and the parallel forex market that together drain billions from the economy. Below is a structured point-counterpoint analysis. I believe this approach will help define the issue more illustratively on the very mundane issue that is mostly interesting to policy wonks than to the general public.
Point 1: The directive closes a massive loophole for tax evasion and trade mispricing
Counterpoint rebuttal: “Overstated customs prices will kill legitimate business”.
Importers have long submitted artificially low proforma invoices to banks to secure partial official forex at the market rate (around 156 Birr/USD as of early 2026), then sourcing the balance from the parallel market at a 13–15% premium (around 180 Birr/USD). Duties and taxes are paid only on the lower declared value.
A senior banker and analyst quoted in “The Reporter Ethiopia” (Jan 31, 2026) explained the perverse incentive perfectly: “The importer is choosing to evade taxes because buying the forex at the parallel market’s margin is cheaper than paying taxes on the full price declaration.”
The cost to Ethiopia? Global Financial Integrity’s January 2026 report documented “$24.6 billion” lost to trade misinvoicing between 2013 and 2022 — roughly “$1.7–3.1 billion annually” — the highest for any non-oil African economy. This is not abstract; it is revenue the government could have used for roads, schools, or debt service.
“Rebuttal to the criticism”: ECC prices are “not fixed or mandatory”. The NBE’s own February 7, 2026 clarification states they are “reference points… to assess the reasonableness of declared import prices” and that banks should focus only on “abnormal or significant discrepancies.” Importers can (and should) submit supplier quotations, volume discounts, or relationship-based pricing as evidence. Legitimate businesses with real global supplier prices will clear easily; only systematic under-invoicers will face scrutiny. This is standard international practice in countries fighting mispricing — and it works when paired with post-clearance audits, which, I believe, Ethiopia is already strengthening.
Point 2: Forcing fuller official forex demand will shrink the parallel market and stabilize the birr.
Counterpoint rebuttal: “There isn’t enough official forex; this will just lengthen queues and cause shortages”.
Under the old system, partial LCs plus parallel-market top-ups fueled a vicious cycle: official demand stayed artificially low, banks faced less pressure to mobilize forex, and the black-market premium persisted despite the July 2024 market-based reform.
By requiring realistic full-value LCs aligned with customs data, the NBE is channeling genuine import demand into the formal system. This increases pressure on banks and the central bank to supply more forex through auctions, interbank trading, remittances, and export earnings — exactly what the reform agenda needs. NBE has already responded with unscheduled $500 million auctions and other liquidity measures in early February 2026. Parallel-market spreads have been volatile but the long-term trajectory under consistent enforcement points downward, as seen in similar FX liberalization episodes elsewhere.
“Rebuttal to the criticism”: Yes, initial queues may lengthen if forex supply lags — but that is the point. The policy exposes the true scale of unmet demand, forcing structural fixes (export promotion, remittance formalization, diaspora accounts, investment climate improvements) rather than letting the parallel market paper over the problem. Importers who previously paid 15+ Birr/USD “commissions” plus black-market premiums will now face transparent official costs. The net effect for honest businesses is lower overall financing cost once the premium narrows. Short-term pain for genuine long-term gain.
Point 3: Harmonizing bank and customs prices improve data integrity and policy making
Counterpoint rebuttal: “This creates disputes between banks and businesses and risks inflation”.
Discrepancies between NBE-accepted LC prices and ECC valuation data distorted balance-of-payments statistics, understated import values, and undermined monetary policy. It is believed that consistent reference pricing fixes that at the source.
“Rebuttal to the criticism”: Disputes will occur — but only where pricing deviates abnormally. The February 7 clarification explicitly prevents blanket rejection; banks must use the prices as supporting data, not rigid ceilings. On inflation: any pass-through from higher declared values will be one-off and modest. More importantly, reducing the parallel premium and tax evasion will lower the hidden “inflation tax” that importers previously baked into consumer prices. Manufacturing sectors reliant on imported raw materials (chemicals, fertilizer, fuel) will ultimately benefit from a more predictable and formal forex environment rather than chronic shortages and 15–20% black-market surcharges.
Point 4: This is not an isolated move — it is coherent with broader successful reforms.
The July 2024 forex directive already shifted Ethiopia to a market-clearing rate, removed minimum import prices, and gave banks price-verification responsibility. The January 2026 LC rule simply closes the enforcement gap that emerged during implementation. It aligns with IMF Article IV recommendations to deepen the FX market and reduce parallel-market recourse. NBE Governor Eyob Tekalign’s team has shown willingness to adjust quickly (see the Feb 7 clarification and ongoing auctions).
Critics who call this “temporary” or “insufficient without structural fixes” miss the reality: structural fixes (export diversification, digitization, tax rationalization) take years. You cannot wait for perfection while losing $2+ billion a year to mispricing. This directive is a pragmatic, enforceable step that raises the cost of evasion and the reward for playing by the rules.
Verdict
For once, I believe that the National Bank of Ethiopia is taking the “correct policy”. Under-invoicing and parallel-market dependence are not victimless practices; they starve the budget, distort data, weaken the birr, punish the poor, and reward the connected over the compliant. It may even take a small bite out of the endemic corruption. By mandating reasonable price alignment — with built-in flexibility via the February clarification — the NBE is protecting public revenue, formalizing trade, and accelerating the very market reforms importers claim to support.
Short-term frictions are inevitable in any serious cleanup of a distorted system. But the alternative — continued tolerance of $24.6 billion in decade-long leakage — is far costlier. Businesses that adapt to full-value, transparent LCs will thrive in the “emerging” formal forex market. Those who cannot may need to examine why their “supplier prices” consistently fall so far below customs benchmarks.
Ethiopia’s economy is already enduring far bigger disruptions and adjustments since 2024. This one is relatively simple from a policy perspective, manageable, targeted, and overdue. Again, for once, the NBE deserves credit for following through.
Teshome Abebe, PH.D., former Provost and Vice President for Academic Affairs, is Professor of Economics and Faculty Laureate.
Editor’s Note : Views in the article do not necessarily reflect the views of borkena.com
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