COMPATIBILITY OF ETHIOPIA’S FOREIGN EXCHANGE REGULATION WITH THE IMF ARTICLES OF AGREEMENT

Abstract

States have the sovereign right to regulate monetary activities within their territories to cope up with various policy objectives. One of such areas where regulation is necessitated is the current international payments and transfers for international transactions. These are regulated both at national and international level via state’s foreign exchange regulations and the liberal IMF Articles of Agreement respectively. State’s foreign exchange regulations are being used not only as instruments to protect policy objective of the country, but also as a rules eroding the policy of growth and development of the country to be achieved through international transactions like trade and investment because of exchange restrictions. Against this backdrop, this study aims at checking the consistence and elucidating how to harmonize the Ethiopian foreign exchange regulation on current account with the IMF Articles of Agreement. In course of this work, it finds that some provisions of Ethiopian foreign exchange regulations on current account are incompatible with IMF Articles of Agreement. These provisions are incompatible because they are not in line with the IMF standard of liberalization. This by itself affects the country’s WTO accession process and a reputation of welcoming international transactions such as trade and investment. Thus, the absence of IMF friendly provisions in the domestic legislations deteriorates the country’s economic activities. For these, the study found the need to adopt a holistic approach of reforming the incompatible Ethiopian foreign exchange provisions from the general to the substantive contents. Accordingly, to safeguard Ethiopia’s development interest, its foreign exchange provisions should be reconsidered. For this to happen, a resort to amendment would be a way-out. In due course, amendment should end up with the liberalization of the restrictive provisions and this pave the way for the country to accept article VIII obligations and there is no reason why Ethiopia should not move to article VIII status.