Ethiopian Review

The terms budget requested, budget approved, budget year closed, budget allocated, budget denied, supplementary budget, budget discipline… are used in everyday language. Hence, much thought may not be given to them. However, the content, preparation, approval, execution and oversight of a budget, particularly the national budget, are very challenging and critical.

So what is the national budget?

It is the financial expression of a nation’s goals or plans. As such it has a crucial place in all the affairs of a nation.

It is also an expression of a nation’s economic and financial management. That is why a critical importance is attached to it.

The national budget is an expression and a reflection of a nation’s policies. It is a “policy statement,” it is not about ordinary expenditure or ordinary funds.

In view of this critical nature of the national budget, there are various grave and troubling developments looming over Ethiopia’s national budget.

The Ethiopian federal government has tabled before parliament its budget for the 2002 Ethiopian fiscal year. There will be something new about this budget – from now on the government has to close its budget every year. It will no longer be allowed to close, as it has been “permitted” by law, its annual budget “as soon as is possible,” which could be extended up to five years.

Doing away with the government’s right to defer up to five years its obligation to close its annual budget and placing on it the duty to close it every year is one of the relatively positive developments that occurred during this budget year. However, this did not come about as a result of parliament’s desire to discharge its oversight responsibility over the government but rather because the government believed it could close its budget annually and was “gracious enough” to submit to parliament a bill imposing on it such a duty. It does not show parliament’s strength.

Apart from this, the process of preparing up to execution and oversight of the national budget are fraught with grave and worrying problems. In general, a budget has four stages: drafting/formulation, approval/enactment, execution and oversight/auditing.

Let’s look at some of the major problems that are besetting these stages/processes of the national budget. Are they properly institutionalized? Do they insure public participation? How participatory is the budget formulation process? Who participates in it? Do members of parliament receive institutional support that enables them to pass a reasoned and knowledge-based vote on the budget bill? Is there a strict deadline by which the draft budget bill must be presented by the Ministry of Finance and Economic Development (MoFED) to the Cabinet and the Cabinet to Parliament? Is there a limit to government expenditure (and by extension revenue) as a percentage of GDP as well as to the level of government budget deficit? What does a budget administration that does not tolerate corruption look like? Are the consequences of failure to carry out a budget audit properly appreciated? How independent is the Auditor General?

The answer to these questions is: “not encouraging.” During the reign of Emperor Haile-Selassie, there was a limit in domestic government borrowing. The EPRDF tried to re-introduce it beginning in the mid-1990s. It also made it mandatory for the government to pay its debt locally before it indulged in fresh borrowing.

However, in a law that was enacted in 2008 to govern the operation of the regulatory National Bank of Ethiopia (NBE), the limit set on domestic government borrowing by the previous law was repealed and replaced by a provision stating that the limit would be determined “in consultation between the government and NBE”, as if the NBE were independent of the government. This is very worrisome. If the government and NBE were to disagree during their consultation and the lender’s (NBE’s) advice is not heeded, it is “force” and not the law that will prevail.

In mid-2008, the Federal Auditor General said in a report it presented to Parliament that the federal government had exceeded the domestic borrowing limit in one of the years for which it had not closed its budget. An independent ad-hoc committee that the government itself established to verify this questioned in a report it presented in October 2008 whether the limit should be determined “on the basis of the overall amount that the government had borrowed or the balance that remains after deposits in bank accounts are deducted” reached a conclusion which implied that both were tenable. This is also troubling.

The draft Revised Federal Government of Ethiopia Financial Administration Proclamation, which is expected to be voted into law before parliament goes into recess on July 7, stipulates that “For the purpose of determining debt limits domestic debt shall be considered as the balance between the Federal Government borrowings in the form of Direct Advance and securities and the deposits in the accounts of federal and regional Public Bodies’ bank accounts.” This not only amends the existing law but also sets another example where the government resorts to issuing a law which is tailor-made to fit its interest rather than abide by the “hobbling” law that is in force.

Another cause for concern surrounding the national budget is the relaxing of existing procedures on transfers from the Recurrent Budget to the Capital Budget, from one Public Body to another and from one expenditure item to another by the draft government financial administration proclamation.

There is also a concern that the procedures whereby Parliament delegates the Council of Ministers, the Council of Ministers delegates MoFED and MoFED delegates public bodies financed by government-allocated budget will loosen the strict control and accountability that is needed in budget administration.

Furthermore, there are questions over how much thought was given to the allocation in the draft budget bill of allowances for government officials who leave office in the budgets of governmental institutions. Allocating such an allowance in the draft budget bill at a time when another draft proclamation governing the allowances to which government officials who leave office are entitled to is still in the pipeline gives rise to the prospect of a knotty problem should both draft legislations be enacted. Why wasn’t Parliament able to fathom the possible occurrence of this undesirable prospect?

In general, there are several problems attending the national budget, which need to be carefully addressed. Given that we presently find ourselves in the midst of one of the worst global economic crises in living memory and are in a desperate foreign currency crunch, we need to demonstrate a unique concern, responsibility and integrity to properly manage our budget for the next fiscal year. But do we have the funds to finance the budget?!

- Ethiopian Reporter