10 June 2018

Ethiopia: Austere Budget

It is that time of the year when the Minister of Finance & Economic Cooperation - Abraham Teksete (PhD) in this case - appears before Parliament to table the budget bill for the upcoming fiscal year to the federal government. In the past couple of years, the session has been characterised with ambitious budgets to match development goals.

This year it is different. The budget bill proposed is 346.9 billion Br, with 91.6 billion Br and 113.6 billion Br set aside for recurrent and capital expenditures, respectively. Over 135 billion Br is earmarked for subsidies to regional states, and the remaining pays for expenditures under the Sustainable Development Goals (SDGs).

In aggrigate the budget may appear higher than that of the previous years but has shown much smaller growth rate, if not diminished in dollar terms. Last year, the budget expanded by over 40pc, and almost 25pc from the year before, compared to eight percent growth proposed for the next fiscal year. When adjusted for inflation, the budget further shrunk.

This budget proposal comes on the heels of a sobering report on the half period performance of the second edition of the Growth & Transformation Plan (GTP II) of the National Planning Commission. It revealed that the nation had underperformed in growing export earnings, keeping inflation in the single digits, bolstering the manufacturing sector, and raising the ratio of tax GDP. Attributing to sever forex crunch and debt stress, the Commission urges the government to follow a policy of austerity where projects are prioritised based on cost and relevance, while recommending for no more new projects be launched.

The tighter fiscal policy that the new budget bill mirrors declined imports last year from 16.7 billion dollars to 15.8 billion dollars revenues. Institutions such as the International Monetary Fund (IMF) have long advocated for a tight fiscal stance to curb current account deficit and alleviate the forex crunch and lower the dept-GDP ratio. This may be too little too late considering the current macroeconomic situation though, according to economists. They argue that a supplementary budget in the middle of the year is likely and that the only way out of the crises is structural and policy reforms that address the forex regime and reform the financial sector. YOU CAN READ THE FULL STORY HERE.


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