Ethiopia and UAE Sign $817 Million Currency Swap Agreement

The central banks of Ethiopia and the United Arab Emirates (UAE) have signed a bilateral currency swap agreement valued at up to 3 billion dirhams ($817 million). This agreement, announced on Tuesday, aims to bolster financial cooperation and facilitate cross-border transactions between the two countries.

In addition to the currency swap, the National Bank of Ethiopia (NBE) and the Central Bank of the UAE (CBUAE) signed preliminary agreements to establish a framework for using local currencies in settling cross-border transactions and linking their payment and messaging systems.

Khaled Mohamed Balama, Governor of the CBUAE, highlighted the significance of the agreements, stating, “The bilateral currency swap agreement and the MoUs signed today reflect the robust economic cooperation between the UAE and Ethiopia, specifically in the areas of trade and investment.”

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Mammo Mihretu, Governor of the NBE, emphasized the UAE’s crucial role in the Ethiopian economy as a significant source of foreign investment and development finance. He added that the agreements demonstrate the shared commitment of both countries to deepen their bilateral partnership, facilitating sustainable development and a prosperous future.

The currency swap agreement allows for the exchange of 3 billion dirhams for 46 billion Ethiopian birr. This swap will enhance liquidity in local currencies, enabling effective settlement of cross-border transactions between the two nations.

Addressing Economic Challenges

Ethiopia, currently facing a significant foreign exchange shortage, holds reserves of $3.46 billion. The currency swap agreement provides an important funding opportunity and helps diversify the range of currencies available to facilitate the growing volume of trade and investment transactions. This is particularly crucial as Ethiopia’s talks with the International Monetary Fund (IMF) and World Bank have reached a standstill. The IMF and World Bank have been urging Ethiopia to implement economic reforms and improve fiscal management to address its financial challenges.

Enhancing Financial Cooperation

The two countries also signed two initial agreements to promote the use of local currencies in cross-border transactions and enhance the integration of payment systems and financial technology. These agreements will encourage financial and banking cooperation through knowledge-sharing and development of respective financial markets.

The first agreement aims to promote the use of the UAE dirham and Ethiopian birr for settling cross-border transactions. The second agreement focuses on linking payment platform services and electronic switches, including interlinking instant payment systems, national card switches UAESWITCH and ETHSWITCH, and messaging systems according to the regulatory requirements of each country.

Strengthening Economic Ties

In 2022, the UAE’s non-oil exports to Ethiopia reached $210.3 million, with significant exchanges in the pharmaceutical, chemicals, and food industries. The two countries cooperate in various sectors, including agriculture, finance, culture, tourism, government development, food security, renewable energy, trade, investment, industry, and advanced technology.

Khaled Balama, Governor of the UAE Central Bank, noted that the currency swap and related agreements will enhance economic, trade, and investment prospects, paving the way for more joint business opportunities in the financial and banking sectors.

Conclusion

The bilateral currency swap agreement and related preliminary agreements signify a strengthened economic partnership between the UAE and Ethiopia. These measures are expected to facilitate cross-border trade, enhance financial cooperation, and support Ethiopia’s economic stability amid its foreign exchange challenges.