Budget focuses on stopping wheat dependency, tax increases

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Expected amendments to VAT, excise tax and investment incentives are targeted to boost the government’s revenue to allocate more budget in the coming fiscal year. The federal budget allocates a significant amount of money for the irrigation scheme that would be managed by trained youth. The birr is estimated to be devaluated by more than six percent in the coming year.
On Tuesday June 12 Ministry of Finance tabled the 2019/20 fiscal year draft budget, amounting to 386.9 billion birr. This shows an increase of 1.6 percent compared with the 2018/19 budget year that will end on July 7.
The government wants to earn 224.8 billion birr from taxes. This is an increase of 6.5 percent or 211 billion birr.
In his budget speech Ahmed Shide, Ministry of Finance, stated that the targeted budget collection for the coming year would have a difference of close to 32 percent compared with the actual tax collection estimation for the current year.
He said that based on the current condition the tax collection for the current year would not pass 170 billion birr even though the projection was 211 billion.
According to the information Capital obtained from Ministry of Revenue the tax collection for the 2017/18 was 149 billion birr, while the target was close to 200 billion. Due to that the current year’s expected actual collection would have an increase of about 20 billion birr than the preceding budget year. However the Ministry of Revenue information stated that the past budget year tax collection is 149 billion birr Ahmed stated that the tax collection for the 2017/18 fiscal year was 235 billion birr, which is confusing for experts following the budget.
In his speech at the parliament he said that the expected amendments are highly anticipated by the government to improve its revenue for the year. In the 2019/20, which is the end of the second Growth and Transformation Plan (GTP II), the government planned to make the tax collection 17 percent of the GDP, while the last year performance indicated that the collection is about 10 percent, which was even reduced from about 13 percent about two years ago.
Priority
The coming year budget has also given priority for irrigation projects that would be managed by farmers and organized youth. According the draft budget 2.8 billion birr has allocated for trained youth irrigation projects plus one billion birr for the implementation of the scheme.
Totally 4.6 billion birr has allocated for irrigation sector including half a billion birr that will be allocated for farmers who manage irrigation jointly on their farm lands.
The government has said they are interested in cutting wheat imports through ample production here using the irrigation scheme. The government has target to stop the wheat import that consume over USD 600 million every year within three years period.
Ahmed said import substation like produce wheat in the country is the area that the country will follow for the year.
Like previously, education and roads have the most attention in the federal budget. In relation to the growing number of higher education institutions the budget education sector mainly for recurrent expenses has been growing every year. For the coming year the education sector will secure 50.5 billion birr or 21 percent of the total budget that follows by road sector that manages by Ethiopian Roads Authority (ERA) has secured 19.4 percent of the total budget that allocated for federal government. For the year ERA will use 46.7 billion birr of which 38.2 billion birr will cover by public coffer.
The loan payment amount has show change every year and takes as one of the top budget positions. For the coming year the loan sector has stood at the third position after education and roads. From the total federal budget the debt settlement has got 10.5 percent or 25.2 billion birr. For the 2018/19 budget year the government has been allocated 22.5 billion birr and it was about 17 billion birr for 2017/18 budget year.
The top three are followed by water, which may also include the high level irrigation project, with 7.3 percent share of the total share, military with 6 percent, agriculture 6 percent, health 5 percent, and urban development 4 percent.
Devaluation
In his speech the Minister said that based on the forecast of National Bank of Ethiopia, the central bank, One USD 1 will be exchanged at 29.74 birr. The depreciation rate will stand at six percent of the current rate. In the beginning of October 2017 the government devalued the birr by 15 percent from other major hard currencies to 26.11 birr per a dollar and it is now reached about 28.05 birr.
Officials of the central bank and relevant government offices stated the devaluation is being done to expand the country’s hard currency earnings. They argued that devaluation would not have significant effect on the market price. However since the devaluation occurred last budget year inflation has returned back to double digit levels and it has continued duing the current year.
In his budget speech Ahmed said that besides political instability in the country in the 2017/18 budget year the currency devaluation has contributed for the inflation. In the 2016/17 fiscal year the average overall inflation rate has been 7.2 percent that hiked to 13.1 percent in the past budget year. He also claimed that the growth of the money supply (M2) by 29.2 percent in to the market has also contributed for the inflation.
He also stated that the 2017 devaluation could not improve the export earnings of the country. “Even though the government has taken policy administrative measures including the devaluation, the export sector did not show any encouragement,” Ahmed told the law makers at the parliament.
Proposed budget and source
For the coming year the government has proposed 386.9 billion birr for the 2019/20 budget year. The amount is an increase of 11.5 percent compared with the original346.9 billion birr budget for the 2018/19 fiscal year, while in the middle of the current budget year the government has approved 33.9 billion birr in a supplementary budget that boosted the budget to 380.9 billion birr. Including the supplementary budget for the current year has increased by only 1.6 percent.
From the stated proposed budget 130.7 billion birr (34 percent) is allocated for capital budget, 109.5 billion (28 percent) for recurrent, 140.7 billion (36 percent) for regional administrations support and six billion birr (2 percent) for Sustainable Development Goals.
The government has targeted to earn 224.8 billion birr from tax, 28.2 billion birr none tax sources and 18 billion birr from Protecting Basic Service Program (the World Bank, African Development Bank and European Union), 19 billion birr project grants, and the budget deficit is 97 billion birr.
Ahmed argued that the deficit is three percent of the GDP and the expected borrowing from local source, which is also known as money print or fresh money on the market is 1.8 percent of the GDP.
He stated that to fill the budget gap the government will borrow 56.8 billion birr local sources (mostly central bank), and the balance will be also secured from Basic Service loan that is external and project loans. The draft document indicated close to 20 billion birr loan will be secured from Protecting Basic Service Program, and more than 20 billion birr for project loan.
In the bilateral loan or state loan China has continued by providing huge finance for the country. For the year via the state itself and EXIM Bank China will provide 4.2 billion birr loan and followed by the South Korean Korea International Cooperation Agency that will facilitate an over one billion birr loan.
Regarding bilateral grant the UK and US has stood at the top with the support of 1.9 and 1.7 billion birr respectively.
Ahmed estimated that the current year’s economic growth would be at 8.8 percent and 9.2 percent for the coming year.