Ethiopia: Supporting the Homegrown Economic Reform Through Proper Budget Allocation

Parliament of the House of Peoples Representatives of FDRE approved 561 billion Birr for the federal government 2021/22 budget year recently.

Earlier to the approval, however, the parliament conducted thorough discussion and debate on the draft budget handed over from the Council of Ministers. On the occasion, various ideas were raised from the members of the parliament. Among the questions forwarded to the Minister of Finance Ahmed Shide was which sectors were given the priority to be supported by the budget and from where the budget is going to be generated.

Responding to the questions, the Minister said that the budget allocation intends to attain sustainable development, accelerate poverty reduction, and encourage job creation. In addition to these, it supports the materialization of the home -grown economic reform, modernize the financial system, enhance production and productivity and enables the country to address problems witnessed in the trade activities.

As to the Minister, the budget basically will be generated from domestic sources and the balance will be from foreign loan and grant.

Currently, even though the government strongly resisted, the western world is trying to subjugate Ethiopia and impose their interest by taking the government punitive measures on the junta in Tigray region as a pretext.

Asked by the members of the parliament whether such pressure hampers the country getting loan from the multilateral organizations, Ahmed replied that the foreign grant and loan expected to come from donor countries will be allocated to accomplish the ongoing projects began years ago which are compatible to the donor's interest. It is not for new projects. He further said that the Ministry does not face any challenges in accomplishing the projects and obtaining the loan and grant. He said hopefully that the government will secure the loan.

However, in case problems occur, transferring the budget to the prioritized sectors will be taken as a remedy.

Asked whether the government utilization of loan from local sources cause an inflation pressure on the market, Ahmed said that the government already has prepared a mechanism to fill the budget deficit and in such a way, it might not resort to getting loan from local sources. However, in case it is forced to get loan from local sources, it will not going to print new money, it will use the money that is in circulation which has no inflation impact.

The home-grown economic reform put a mechanism on budget allocation and one of the approaches covering the government's budget is selling Treasury bill in which banks and insurances will compete in an open bid and the winner will pay the money from its own deposit.

Ahmed further said that the shortage of commodities witnessed in the market will be resolved through enhancing production, productivity and supply. To this end, packages are prepared to support producers.

However, to address the shortages of commodities due to economic sabotage by greedy brokers, the government will take various measures to put accountable to their illegal acts and the Ministry of Trade and Industry along with the Ministry of Transport are given the mandate to enforce the law. Side by side with these, systems will be introduced to encourage fair competition between traders.

As to Ahmed, to shore up the nation's shortage of hard currency the package to enhance the export volume put in place. Agricultural products which have high demand in the foreign market are identified and being grown and incentive will be provided to farmers.

To enhance the service provision activities to the foreign market, the Ethiopian Air line which is a major hard currency earner will be encourage to strength its pivotal role.

Currently, the foreign trade volume is increasing and conducive environment to enhancing the currency earning capacity is created.

In line with this, import substitutions which help to save the nation's meager resources will be strengthened. Substituting the imported wheat through lowland irrigation mechanism already brought tangible result by saving hard currency. Such practices will be sustained on other agricultural products such as edible oil and garments.

With regard to job creating to the unemployed, Ahmed said that the budget targets to create job opportunities to 1.4 million people in the new budget year.

In addition to this, fertile ground is prepared to the private sector to expand its business and to play crucial role in creating employment.

The budget money is allocated phase by phase according to the projects' schemes. Government enterprises that are institutionalized to make profit also play their own part in the job creation program. Expanding irrigated agriculture will be continued and employing the youth in this sector is targeted.

With regard to the emergency relief, the Minister said that previously, budget was derived from the reserve money but for the next year it is allocated from the regular budget. In 2020/21 budget year 13 billion Birr was allocated for the emergency relief.

For the coming budget year, however, 8 billion Birr additional budget is allocated only for displaced people apart from the other emergency aids. Previously, the money was spent for displaced people while they are in their provisional camps but right from the coming year with the cooperation of the partners, the budget is deployed not only to provide relief at the camps the displaced people settled but also to return them back to their home and rehabilitate them.

To contain and supervise the budget mismanagement based on the report coming from the Auditor General, the managers who abuse their authority will be put accountable to their illicit deeds.

In the budget year already began, various measures will be taken to encourage inclusive financial system which enables to embrace the lower income bracket group.

Furthermore, conducive environment will be created to make viable money supply system with very low inflation effect. System also put in place which enables viable liquidity management system.

The implementation of utilizing movable property as collateral to secure loan from banks enable to attract many who previously had not access to finance and such practice will be strengthened in the already began budget year and to that end the number of banks which provide such services will be increased, he stressed.


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