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Government expenditure surges direct advances

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The direct advance channeled to the central government at the first quarter of the fiscal year surges by two and half folds.
The first quarter report of the National Bank of Ethiopia (NBE) which analyzed the economy in detail indicated that at the first quarter of the 2021/22 fiscal year that included months from July to September shows NBE’s gross claims on the central government bulging by 36.0 percent to 311.9 billion birr.
From the stated amount, the government bonds accounted for 63.6 percent while direct advances took 36.4 percent.
“Direct advance to the central government rose sharply by 266.1 percent compared to last year same period due to huge government expenditure demand,” NBE explained.
The national bank noted however that the deposit of financial institutions at the NBE contracted by 12.5 percent on annual terms despite 19.1 percent quarterly increase.
The quarterly report shows that the direct advance on the stated period stood at 113.5 billion birr that was 31 billion birr in the same period of last year and 83.5 billion birr at the fourth quarter of last fiscal year, which is the preceding quarter from the reported three months.
It was recalled that through introducing different instruments the government had enabled to successfully reduce the direct advance sharply in the preceding quarters, though it showed slight increment in the past few periods.
Unforeseen events like the conflict in the northern part of the country in addition to rehabilitation and aid, and drought was stated to have forced government to access finance through direct advance from the central bank. Experts however, recommended government to reduce its direct advance as much as possible since it’s consequential on the economy.
Therefore other instruments like treasury bills (T-bills) were recommended to be used for the budget deficit.
According to the NBE quarterly report, during the first quarter of 2021/22, the amount of T-bills supplied to the biweekly auction market was 226 billion birr, showing 581.3 percent annual increment.
Similarly, the demand for T-bills was increased by 156.5 percent to 136.6 billion birr while the total amount of T-bills sold reached 130.6 billion birr, showing a 291.6 percent surge over similar periods of last quarter.
Banks bought T-bills worth 93.5 billion birr while the remaining T-bills valued at 37.1 billion birr were sold to non-bank institutions.
“As a result, 40.8 billion birr (net of redemption) was mobilized for government budget financing. The total outstanding T-bills at the end of the quarter reached 161.5 billion birr, reflecting a 316.6 percent increase over last year same period,” the report elaborated.
The average weighted T-bills yield was 9.18 percent, about 46.2 percentage points higher than a year earlier that was 6.3 percent mainly due to the policy change on issuance of T-bill through auction market.
At the end of first quarter of 2021/22, broad money supply (M2) reached 1.4 trillion birr exhibiting a 28.4 percent annual growth, owing to 29.6 percent expansion in domestic credit and 17.0 percent in other items.
Similarly, the reserve money reached 287.1, billion birr showing 9.8 percent annual expansion while excess reserve of commercial banks depicted 54.8 percent, annual contraction.
During the review quarter, banks disbursed 65.3 billion birr in fresh loans, indicating 18.7 percent annual increase. Of the total new loans, the share of state owned banks was 56.1 percent and that of private banks 43.9 percent.
In the first quarter of 2020/21, the share of state owned banks as fresh loan was 30.3 percent and that of private banks was 69.7 percent.

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