By Yared Seyoum
- The two nations will be able to directly exchange their local currencies
The central banks of the United Arab Emirates and Ethiopia signed a bilateral currency swap agreement worth up to three billion dirhams (USD 816.79 million) on Tuesday. It is a move that could provide much-needed relief to Ethiopia's economy.
Ethiopia has faced a severe shortage of foreign exchange reserves for over a decade, a crisis that has crippled the country's ability to pay for essential imports such as fuel, medicine, and raw materials.
The forex crunch has contributed to rising inflation, supply chain disruptions, and economic stagnation, having even pushed the nation to recently default on its external loans.
Under the deal, the central banks of the two nations will be able to directly exchange their local currencies, the dirham and the Ethiopian birr, reducing the need for U.S. dollars in their bilateral trade and investment transactions.
The accords include a bilateral swap line allowing the Central Bank of the UAE to exchange as much as three billion dirhams for Ethiopian birr with the National Bank of Ethiopia (NBE), the NBE said in statement.
This initiative will also pave the way for more joint business opportunities in the financial and banking sectors, CBUAE Governor Khaled Mohamed Balama said.
"We look forward to working closely with our partners in Ethiopia to enhance financial stability," Balama said.
Another MOU maps linking instant payment networks like UAESwitch with Ethiopia's ETHSwitch, along with card infrastructure and messaging systems, the NBE said.
UAE is one of Ethiopia's largest trading partners as well as a significant source of foreign investment and development finance, according to NBE Governor Mamo E. Mihretu.
"The currency swap arrangement provides an important funding opportunity for Ethiopia and also helps diversify the range of currencies at its disposal to facilitate the growing volume of trade and investment transactions expected over the coming years," Mamo said.Â