The Central Bank of Ethiopia (CBE) is facing a squeeze on its liquidity, in part due to a 50 per cent increase in its letter of credit (L/C) commitments, according to a federal official.

This adds to L/C woes already experienced in Ethiopia's trading community.

Commitments

In 2008, the CBE's commitments to cover L/Cs for foreign trade stood at 8 billion burr (Br8 billion).

Now, a senior federal official is quoted in local media saying that the bank's L/C commitments are close to Br12 billion.

Additional pressures

The CBE's liquidity is also being squeezed by long-term commitments, including bonds issued to municipal bodies to fund housing projects.

The official says this means that the CBE's long-term commitments had reached Br25 billion by the end of 2009, substantially more than its target limit of Br19 billion.

Last year it emerged that Ethiopians were waiting months to open L/Cs as the country struggled to boost its foreign exchange reserves.

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