Ethiopian economy faces serious setbacks

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Ethiopian economy is caught in a financial quagmire as foreign aid inflow plunge to record lows. With about 15 per cent of government approved budget of 64 billion birr, for the 2009 fiscal year, expected to be covered by foreign aid and debt cancellation, the Ministry of Finance and Economic Development (MoFED) is struggling to put in place a plan to raise the remaining 54.5 billion, domestically.

MoFED chief, Sufian Ahemed who is in charge of implementing the federal government’s budget proclamation, which was announced in July, has expressed serious concerns over the agency’s ability to cope, following delays in donor responses. Two months after the budget proclamation, the MoFED is still awaiting the required foreign aid. Only 51 million birr in foreign aid has been received to date.

Seeking to throw more light on the gravity of the country’s financial situation, Sufian called on federal agencies, whose contributions to the national treasury represent a substantial amount, to urgently transfer their obligations so as to enable the government bear with the crisis. The search for a domestic solution is in line with Ethiopian Prime Minister Meles Zenawi’s belief that the country’s budget should not be based on foreign loans and foreign aid.

Official statistics from the Development Assistance Committee (DAC), a sub group of the Organization for Economic Cooperation and Development (OECD), revealed that Ethiopia was the 7th largest recipient among 169 aid receiving developing countries, with a net official development assistance amounting to US$1.94 billion in 2006. “We cannot say foreign aid and loans are reliable,” the Meles Zenawi was quoted in a recent speech made at the country’s parliament, “our budget must be covered by our own income,” he insisted.

But the domestic income sought by the administration is facing a rather undesirable challenge. According to official reports, the country’s main federal institutions, including Commercial Bank of Ethiopia, Ethiopian Telecommunication Corporation, and Privatization Agency, expected to make substantial contributions to the budget, had — until last week when they met Sufian — submitted only 2.4 billion birr within the first two months of the fiscal year. They are expected to contribute more than 12 billion birr this fiscal year.

More worrisome is the fact that the country’s Tax-GDP ratio has been rated as one of the lowest on the African continent. So far, Revenue and Customs Authority has only managed to collect 23 billion birr from the last fiscal year, registering a shortfall of 3 billion birr from its obligation specified by last fiscal year’s budget proclamation. According to the MoFED, this performance is below 8 percent of the GDP.

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