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Liquidity crisis thwarts government budget
Abraham Tekeste (PhD), the Minister of Finance and Economic Cooperation (MoFEC)

Liquidity crisis thwarts government budget

The Government of Ethiopia is said to be facing a liquidity crisis as the decline in export earnings and tax revenue reaches an alarming level and foreign borrowing comes to a squeaking halt due to the country's external debt stress, the Ministry of Finance and Economic Cooperation (MoFEC) admitted to the House of Peoples’ Representatives (HPR) on Thursday. 

The country's trade balance continues to exhibit a large gap. Last fiscal year, the trade balance showed a USD 13 billion deficit. The country's external debt excluding the borrowings made by the State-Owned Enterprises (SoEs) has reached USD 24.7 billion as of this Ethiopian fiscal year.  

The situations led the government to publicly disclose its frustration in sustaining the economy due to the ill-performing export, tax revenue and weakening investment.

This was disclosed during a regular session of the House where the draft budget bill for the upcoming Ethiopian fiscal year of 2011 (2018/19 G.C) was tabled for discussion.

The proposed budget stipulates 346.9 billion birr spending for the upcoming fiscal year.

The latest budget bill came to the floor a week after it was endorsed by the Council of Ministers offering only 3.6 percent increment from the current fiscal year.

Abraham Tekeste (PhD), the Minister of Finance and Economic Cooperation (MoFEC), presented the budget bill to the House and responded to questions raised by MPs.

The budget bill usually attracts the attention of MPs and the case was the same on Thursday whereby the Minister had to spend a long day while addressing several questions from more than 20 MPs.

However, unlike the previous sessions, MPs raised major questions about Mega projects in the country. Accordingly, the representatives urged the ministry and the government to intervene in some of the mega projects with unquenchable hunger for financial resources due to delay as well as efficiency problems.

Even though they were expected to contribute to the economic growth by boosting export, MPs pointed out further that these mega projects are taking a heavy toll on the nation.

According to MPs, like the past several years, these mammoth national projects are still receiving a large amount of the national budget despite their performances. The budget which is allocated to these mega projects is mostly from the financial resources that the country secured from foreign loans, one MP said, while expressing his concern over the country’s current debt stress.

“The [country’s] foreign debt has reached its maximum worrisome level. Yet, our mega projects repeatedly miss their deadlines and are unable to be operational. They keep demanding extra budget year on year and the government keeps allocating more and more budget to them. I still see a similar trend in the latest draft bill. Before tabling this budget bill for discussion, have you made any evaluation with regard to these mega projects?" an MP asked.

In his response, Abraham told the House that the year has not been exciting for the country's overall economy. Particularly, the disappointing export and tax collection performances were said to be a major blow for the economy. According to the minister, this year’s performance even failed to measure up to the previous year, let alone meeting its ambitious target.

“The export sector did not see any real improvement this year also,” Abraham said to MPs, adding that the nine-month performance of the current fiscal year indicated an export intake of USD two billion, which is four percent higher than the previous year.

 He further told the House that the performance of revenue collection as well have been weaker than the previous few years. In this regard, he noted that close to 50 billion birr is not expected to be collected during the current fiscal year.

Abraham explained to MPs that lack of commitments from the governments side coupled with the existing structural problems in tax collection system are responsible for the disappointing revenue performance. 

If we see the tax collection performance, especially during the past two years, it has shown a significant decline. To speak frankly, the government has never treated this tax agenda seriously, the Minister told MPs.

He also noted that despite the country’s glaring achievements in economic growth for more than a decade, there are still over 20 million citizens languishing under poverty while unemployment among urban residents has risen to 16.5 percent.

The proposed budget exceeds the previous one by 3.6 percent (12.1 billion birr) and the highest slice amounting to 135.7 billion birr was allotted for the support of regional states.

According to Abraham, out of the proposed total budget, 287.6 billion birr will be covered from local sources, foreign loan and aid. The remaining 59.3 billion birr will be a deficit to be covered by domestic borrowing. Accordingly, the budget deficit is around 2.3 percent of GDP which is lower than the 3 percent limit. 

After deliberating on the draft, the House referred the draft bill for further scrutiny to the Budget and Finance Affairs Standing Committee.