Ethiopia faces fiscal strain due to instability, high humanitarian spending

Addis Abeba – Finance Minister Ahmed Shide presented a challenging fiscal picture to the House of Peoples’ Representatives’ Planning, Budget, and Finance Standing Committee yesterday.

While presenting the ministry’s nine-month report, Minister Ahmed highlighted the impact of instability in “some regions,” which has driven up humanitarian aid and reconstruction costs.

According to him, government revenue for the past nine months reached 331.1 billion birr, while expenditures ballooned to 470 billion birr, resulting in a significant deficit.

The minister confirmed that the deficit was financed domestically, raising concerns from Desalegn Wedage, chair of the Standing Committee.

Desalegn emphasized the rising domestic debt and urged a shift in policy direction.

State Minister of Finance Eyob Tekalgn addressed the budget gap by calling for increased revenue generation from regional governments and enhancing their financial self-sufficiency to help bridge the budget gap.

Furthermore, the state minister informed legislators of the challenges faced by federal development projects due to the inflated compensation demands during implementation, which he said have impeded progress across various regions.

The parliament is currently debating amendments to the land expropriation bill, aiming to transfer responsibility for compensation, disbursement, and execution from the federal government to regional and municipal authorities.

Despite significant challenges, Minister Ahmed reported progress in combating inflation, which has substantially increased the cost of living and eroded the disposable income of Ethiopian households.

“With the measures taken to stabilize escalating prices in the fiscal year, headline inflation has been brought down by 23%,” he told legislators, adding that the plan is to reduce it to 20% by the end of the fiscal year.

Official data released by the National Bank of Ethiopia (NBE) indicate that headline inflation stood at 27.7% in September 2023. AS