Wednesday, July 17, 2024

Ridding proposed fed budget of inequity, inefficiency

A national budget is arguably one of the most crucial public documents. It is a tool vital for government planning, resource allocation, and financial management. Government budgeting is the cornerstone of effective governance, requiring the strategic allocation of revenues and borrowed funds to attain the policy goals of a country. It also involves the management of government expenditures with a view to create a positive economic impact while supporting a healthy fiscal position. The entire process is a complex landscape to navigate given it asks of senior officials to perform a difficult juggling act to strike a balance in the context of limited resources, competing policy priorities and economic uncertainty. In emerging or fragile countries like Ethiopia, it is an even more challenging exercise stemming from the imperative to manage rapid economic changes to fostering sustainable growth while addressing disparities and managing the effects of conflict.

Ethiopia’s government budgeting process, akin to that of virtually all other countries, has always been an exercise dogged by controversies. The 971 billion birr federal budget for the 2024/25 fiscal year that the Minister of Finance defended before lawmakers this week is no exception. The budget proposal drew criticisms from MPs of the ruling party and opposition parties alike, underscoring uneasiness over its effectiveness and fairness when it comes to tackling the multifaceted challenges facing Ethiopia. Experts at the Finance Ministry prepared the budget assuming, in the next fiscal year, a 7.9 percent GDP growth rate, consistent exchange rates, a halving in the inflation rate currently hovering near 27 percent, and the prevalence of peace and stability in Ethiopia. While some of these assumptions may hold true, the others are unrealistic and as such call into question their validity.

On the expenditure side, the draft budget has earmarked 283.2 billion birr for capital expenditure and 451.3 billion birr for recurrent expenditure, up 39 percent and 22 percent, respectively, from last year. The draft also proposes 222.7 billion birr for subsidies for regional administrations and a further 14 billion birr for sustainable development goals (SDGs). As for revenues, it estimates some 563.6 billion birr to be raised through domestic tax and other sources with 325.6 billion birr secured from domestic borrowing and 82 billion birr from external loans and grants. A breakdown of these figures reveals worries shared by many. For instance, more than 28 percent of the recurrent budget, which tops the capital expenditure by around 60 percent, is set aside for salaries, per diems, and miscellaneous expenses and close to 31 percent for debt servicing. Revenue-wise, the considerable uptick in receipts to government coffers in comparison to the previous year is expected to be collected through the introduction of a new VAT and property tax laws.

The allocation of significantly greater funds for recurrent than capital spending in such more productive sectors like agriculture and manufacturing coupled with the imposition of new tax rates on the poor suffering from a post-conflict economy fuels concerns about equitableness and their ability to make up for the yawning budget deficit, which stands at a staggering 358 billion birr. Aside from this, the relatively low amount allotted for humanitarian assistance and recovery efforts leaves one to wonder if the government is genuinely committed to alleviating the plights of its long-suffering citizens. On the other hand, the large recurrent expenditure coupled with the increased tax burden, the brunt of which is to be borne by the poor, casts doubts over whether the government’s stated goal of bringing down inflation by half can be credibly achieved in view of the fact that both stoke inflationary pressure.    

As the federal government draws up a budget proposal that it argues will enable it to plan and manage its financial resources to support the implementation of various programs and projects that best promote the development of the country within the limitations of its financial capability as determined by shifting economic conditions, it’s incumbent on it to ensure that that the implementation measures it takes do not inadvertently impact the majority poor. It is of the essence that the draft budget be revisited with an eye to prioritize humanitarian assistance, recovery efforts, and the fight against inflation in order to address immediate humanitarian needs, promoting sustainable development, and safeguarding economic stability of the country. Needless to say, these objectives can only be met if the political crisis racking Ethiopia is resolved via an inclusive dialogue process. Failure to attach priority to these areas of paramount importance and facilitating the conditions that help their realization will not augur well for the nation and its people.

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