Sunday, July 14, 2024

Finance Ministry locks in a lean budget with self reliance at heart


The Ministry of Finance (MoF), which earlier this year signaled the ruthless focus of a budget that takes into account internal resources, has proposed a budget fairly close to last year, which has now been   approved by the Council of Ministers (CoM), awaiting ratification from parliament.

As per the announcement of CoM, the 2023/24 budget will be 801.6 billion birr, which is about 1.9 percent higher in contrast to the approved budget for the 2022/23 budget year.

Unlike previous years, which spotted double digit increment, the new proposal is a bit leaner.

In consideration of foreign currency conversion, the latest budget proposal in comparison to the presiding one is lesser than the amount approved for the budget year that will end on July 7, 2023.

In different occasions, officials from MoF had been stating that the coming year’s budget allocation will mainly concentrate on local resources unlike the usual flow from international support and loans.

Prior to the budget proposal hearing, in a meeting with budgetary offices that was held on March 15, Finance Minister, Ahmed Shide, told participants that in the coming budget year, the government will focus on debt payment. He added that in the 2023/24 budget year, new capital projects will not be launched and strong controlling mechanism will be emplaced on the recurrent budget.

“In their budget preparation, the budgetary offices will consider the resource on hand rather than imagining foreign grants and loans,” he underlined.

From the proposed 801.6 billion birr, 369.6 billion birr will be recurrent budget that has slight increment compared with 347.1 billion birr that was allocated for the 2022/23 budget year.

However, the capital budget allocation has unusually reduced against the preceding year’s amount.

The capital budget expenditure proposal for the coming budget year is almost 204 billion birr that is about 14.2 billion birr lower than the amount ratified for the current budget year.

The subsidy appropriation to regions and support for achievement of Sustainable Development Goals is set to be 214 billion birr and 14 billion birr respectively.

In this ending 2022/23 budget year, the government approved 786.6 billion birr, while on his nine months report, Ahmed Shide, told parliament that some of the expected resources included on the budget document were not congruent as the resources that were expected from partners did not flow.

Thus, the government has been forced to reschedule some of the projects for coming years.

For this coming year, MoF informed budgetary offices to be vigilant on their budget request.

It is well known that following the deterioration of budgetary support from external partners in the last couple of years, the central government had resorted to alternative policies like using domestic sources to bridge its budget gap.

As the Finance Minister explained on his nine month report about a couple of weeks ago, despite relations with foreign partners now bouncing back owing to the peace agreement signed in Pretoria, South Africa between the government and TPLF, the external financial support is yet to improve.

Ahmed further cited that the financial support and credit from the World Bank is taking the biggest portion, while there are several agreements and commitments with partners to provide financial access.

In his address, the Minister applauded the support of the World Bank and highlighted that due to dry flow from external finance, the government had reluctantly resorted to using local sources like direct advance (DA) and Treasury bill (T-bill).

Cognizant of this, the Minister underscored that this year’s budget gave a priority for completion of projects, debt servicing, reconstruction of war damaged infrastructures and service facilities including aid, and fertilizer subsidy.

The budget allocation for defense has reduced by almost 40.5 percent or 34 billion birr compared with the 2022/23 budget allocation, perhaps in consideration of the peace agreement in connection with the northern conflict.

Debt servicing budget allocation on the other hand expanded by 26.3 percent or 33.2 billion birr compared with this year budget. The top budget allocation for central government goes to debt settlement with 159.2 billion birr or 27.8 percent of the total central government budget, road 68.4 billion birr with almost 12 percent share and education at 56 billion birr with 9.7 percent total share.

On the budget year, grants and soft loans from partners have been included with a small portion on the budget preparation.

Ahmed said that the budget deficit is largely filled by treasury bills and Treasury bond that is introduced in the mid of this budget year.

On his speech the Ministers said that in the coming year direct advance will have heavy reduction.

In the budget year, a total of 520.6 billion birr revenue that includes foreign grants is expected to be generated that would have about 28 percent increment with a tax share of 440.8 billion and a non-tax revenue of 38.7 billion birr. Both these figures are noted to have over 92 percent of the total revenue. For the year, 6.3 billion birr in direct budget support and 34.8 billion birr in project grants are expected to flow.

The gross budget deficit for the year will be 2.48 percent of the GDP coming in at 281 billion birr. The budget deficit has shown reduction in terms of the share of GDP when compared to the 2022/23 budget year of 3.4 percent, while the recommended share remains less than three percent.

For the budget deficit, 242 billion birr will be covered from domestic source while the remaining 39 billion birr is expected to be covered by foreign loans.

According to Ahmed, 53.7 billion birr of the gross budget deficit will be allocated for local and foreign debt settlement.

Regarding tax policy, reforms will be applied on VAT, excise tax proclamation, and introduction of excise tax stamp and social welfare development duty, which will be introduced on all import items.

According to his speech as of the end of the 2021/22 budget year the per capita income has reached USD 1,218 while efforts are still needed to expand the economic growth as per the ten year development plan. He added that different shocks that occurred in the past years have been the reason for to run beyond the development plan.

In the current 2022/23 budget year, the economy is expected to attain 7.5 percent growth while for the coming year 7.9 percent is projected.

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