Ethiopian Federal Budget Balloons to 117.8bn

The federal government announced its ballooning budget of 117.8 billion Br for the 2011/12 fiscal year to Parliament last week.

The draft budget for next year showed an increase of 40 billion Br, up by 52.3pc, from this year’s budget of 77.2 billion Br.

A year into the government’s ambitious five-year GTP, 23 billion Br has been allotted to recurrent expenditure, 48 billion Br to capital expenditure, and 31 billion Br to subsidies to regions.

Among the additions to the budget is 15 billion Br earmarked for the implementation of the Millennium Development Goals (MDGs) that would be supervised by the Ministry of Finance and Economic Development (MoFED). Ethiopia has made progress in MDGs in the area of education progress was seen in universal primary education reaching 95.9 pc in 2009/2010, Net Enrolment Rate (NER) stood at 89.3 pc in 2009/2010. In addition the infant mortality rate has been reduced from 77 to 45 per 1000 live births.

In the draft, five billion Birr is allocated for water and energy, up from 2.5 billion Br this year; while eight billion Birr is allocated for agriculture and rural development, up from 5.6 billion Br this year.

A total of 15 billion Br and 18 billion Br is set allotted for education and urban development, up from 12.3 billion Br and 13.8 billion Br, respectively, this year. For defence, 6.5 billion Br is put aside, up from 4.4 billion Br this year.

During the announcement on Tuesday, June 14, 2011, Sufian Ahmed, minister of MoFED, gave a progress report on the work the government has been doing to improve performance, raise revenues, create jobs, and bolster the nation’s economic growth.

The government plans to collect 100.6 billion Br to finance these, as noted in the 121-page budget. Out of the total, 79 billion Br is planned to be collected from domestic revenues and 21.4 billion Br from external assistance.

“The budget is to be funded by the national treasury and foreign sources,” Sufian said. “It was designed giving due consideration to our financial capabilities, despite stretched demands for a number of huge development projects.”

The government aims to take out loans amounting to 10.6 billion Br from domestic sources and 6.6 billion Br from external loans.

However, the bulk of the government’s financing will come from the collection of 70 billion Br in tax revenues, slightly higher than this year’s target of 68.8 billion Br, the minister announced.

However, the budget increase comes at a price, the budget deficit has widened to 3.6pc of the GDP, coming close to the 2007/08 high of 4.1pc. This is below the three per cent target which Prime Minister Meles Zenawi’s administration has prescribed as a “healthy” threshold.

The annual inflation rate also increased to 34.7pc in May 2011, accelerating from 25.6pc the previous month, as food prices surged, according to data from the Central Statistical Agency (CSA).

The budget saw a domestic financing surplus in the first half of 2010/11, but there was a significant return to financing from the central bank as the treasury bill market collapsed due to highly negative interest rates, the International Monetary Fund (IMF) noted late in May 2011.

The IMF has forecasted Ethiopia’s growth rate may fall from 7.5pc this year to six per cent in the next fiscal year, partly due to inflation. The government’s growth forecast for the current fiscal year is 11pc.

Pundits are more concerned about other huge projects that are not included in the budget, such as aviation, telecommunications, and the Renaissance Dam. As part of the GTP financing requirements these programmes which are for infrastructure and industrial development will be undertaken off budget estimated and are expected to cost 569 billion Br during the GTP’s five year period.

“The exclusion of these key sectors from the budget does not paint a clear picture of how much government is going to spend next year,” a lecturer in economics at Admas University College said that.

“The budget increase should not have come as a surprise. Inflation being at around 30pc the budget increase is not that significant,” said one macro economist.

He further noted that inflation would continue to grow postulating three factors.

“First inflation is entrenched in the system, global prices are rising and will continue to impact the economy and third financing the GTP cannot come through tax revenues or loans. One would expect the government to start printing money and add to the inflation,” the economist noted.

“The question of where the financing from local sources will come is an even bigger concern.”

The same sentiments were echoed by Girma Seifu, the sole opposition MP and chairman of the standing committee for the budget and financial affairs.

“The issue here is that the government will be competing with the private sector for financing from local sources,” Girma said. “If the proposed 10 billion Br funding for road projects is obtained from private commercial banks, five banks would have depleted their liquidity right then and there.”

He advised the government to look for financing abroad.

“It would be best if the government looked for soft long-term loans from abroad as the money could support huge projects while allowing the private sector access to finances,” Girma said. “This would not only allow them to continue doing business, but would also create confidence among the business community.”

The draft budget was referred by Parliament to the standing committee for further scrutiny.