Shortage of foreign currency (Forex) in Ethiopia is not new as a matter of fact it is quite recurrent. The same problem was the economy’s main feature since May 2012. However, this year’s forex shortage is severe and has stagnated the economy.

Shortage of hard currency has negatively affected imports in all areas with the adverse implication in the manufacturing sector like small scale, private sector businesses as well heavy industries. The situation has exasperated to the point where factories have been forced to operate under capacity, suspend production due to lack of imported raw material, crucial commodities are disappearing and many goods are unavailable in supermarkets. As a cumulative effect production costs have escalated, prices have inflated and the economy has slowed down. Companies have been forced to pay salary to their employees for months now without operating. Many of the private sector companies are failing to pay their bank loans. The whole situation has led to corruption in banking sector with people selling their forex in black market.

With declining international reserves Ethiopia will continue to face difficulties in technical development and the world market. Ethiopian ability to repay foreign debts is also argued. Reports suggest that country’s foreign exchange reserves are growing steadily but they are not enough to support country’s heavy import requirements. This is due to Ethiopia’s second “Growth and Transformation Plan” (GTP II) and being 76th largest importer in the world. The country’s telecoms are failing to pay off loans and carry out routine operations. Allegations of forcefully moving communities out of their land have left foreign investors double minded. Can Ethiopia be an overseas foreign risk?

The situation seems quite fragile and bleak since Ethiopian diplomatic missions abroad are also getting affected from being not voted by four countries to be member of UN Human Right Council and on the verge of becoming a non-permanent member of the United Nations Security Council (UNSC).

The root cause seems complex. But there is an urgent need for a workable solution. Sudden release of dollars can no longer help troubled Ethiopian economy. Special measures must also be taken to attract foreign direct investments. There is need for more cooperation with the private sector, encouragement of export earnings, improvements in remittances and implementing a scientific foreign exchange management system to find a solution in a long run.

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