Ethiopian Review

Addis Ababa, Ethiopia — The record 64.5 billion birr federal budget currently going through parliament has a 10.3 billion birr shortfall in funding.

Allocating 29.1 and 14.4 billion birr for capital investments and recurrent expenditures respectively, next year’s budget ignored international monetary institutions lobbying to curb down public expenditures. The advice was offered as a way to curb rampant inflation that once stood second only to hyper-inflated Zimbabwe.

Legesse Biratu of the Coalition for Unity and Democracy was concerned that the budget for national defence remained at four billion, 9.2 per cent of the overall budget, while health only consumed less than 5 per cent. However, the Government says the more important figures are for agriculture, water, rural electrification, road, education and health projects, which collectively make up a 70 per cent share of the budget.

The Government, backed by the latest numbers coming from the Central Stastical Agency that indicate inflation of around 14 per cent for May, says its measures taken to tackle inflation did the trick and prices will be at an acceptable level in less than six months.

Capital investments increased to 29 billion birr from 23.4 billion birr last year, registering a boost of over 24 per cent. Recurrent expenditure showed nearly an eight percent growth.

Regional subsidies were predicted to be around 20 billion birr by the comprehensive macro economic and fiscal package for 2010-2012 by the Ministry of Finance and Economic Development (MoFED) that the cabinet approved. However, the actual figure is an increase of almost one billion birr to 20.9 billion birr. This equates to a 20 per cent increase from last year.

The overall budget is ten billion birr more than last year, almost the same amount next year’s budget deficit is estimated to be. Regarding the 10. 3 billion birr deficit, MoFED says it has secured close to 3.8 billion birr from foreign project loans, while debt relief is expected to ease the budget gap by another 118.9 million birr.

“Most of the loans are secured and won’t be altered by the current global economic slowdown,” MoFED Minister Sufian Ahmed assured MPs concerned about Western countries slashing their support.

“The biggest loans come not from individual nations, rather from agencies like the World Bank, Africa Development Bank (AfDB) and the European Union (EU),” Sufian explained.

According to Sufian, while the AfDB and the World Bank calculates what it will give to countries every three years, EU does the figure every five years, preventing funds from fluctuating annually.
MoFED has already sealed most of the loans it says will make up the deficit.

“I know you had to exert pressure and effort to collect what was promised for this year. Now that the global economies are still unsettled, how secured are the loans we expect to cover a significant portion of the budget?” Ethiopian Democratic Party chairman MP Lidetu Ayalew asked, also expressing concern about the effect of next year’s general elections.

The Government says the latest trends are encouraging: the National Bank of Ethiopia’s (NBE) nine month report, for example, shows the country taking 1.44 billion dollars in loans and grants, a staggering 63 per cent increase from last year.

“Even as far as the small contribution of direct loans and supports from some countries are concerned, the largest in both quality and quality comes from England, who when recently hosting G-20 didn’t only vow to maintain its support for the developing world, but promised to offer more help in light of the crisis,” Sufain explained, easing MPs concerns.

However encouraging the foreign grants and loan are, there is still around a 6.5 birr billion shortfall remaining, which the Government will have to absorb from domestic borrowings.

As part of the fierce fiscal measures the Government said it has taken, net domestic borrowing was announced to be zero this year and the National Bank reported that loans granted to the Government showed a decrease of 4.5 per cent during the year.

MoFED predicts the 2010/11 federal budget will be around 75.3 billion birr with a 9.1 billion birr deficit.

- By Kirubel Tadesse | Capital Ethiopia