Ethiopia is Facing a Big Budget Deficit

October 26, 2009 (ADDIS ABABA) — The Addis Abeba Administration has requested that the Prime Minister’s office to be included in the budgetary support provided by the federal government to selected regions. It also wants to get loans and bring into its fold the major tax payers in the city whose tax goes to the federal government.

The letter, copied to Finance and Economic Development Minister, Sufian Ahmed, was submitted two weeks ago, but no answer has yet been given to it.

“We are facing a big budget deficit. Everywhere in the world, capital cities receive budgetary support from the government,” said a top official of the city, who insisted on anonymity.

In Ethiopia, however, the House of Federation has never included Addis Abeba when it prepared the budget support formula.

“Addis Abeba has never been included, because it has the largest revenue compared to other regions,” said Debebe Barud, head of Economic and Social Study Department at the House.

The support,  is provided to narrow down the growth gap between regions he says. However, the city has never known a surplus, according to City officials. The 122 year old city has always been a problematic place. A study conducted in 1998 by the Region 14 Administration of Ali Abdo had listed a series of big problems which the city had not been able to address because it had not had enough money, the study convey.

The city then supplied 150,000 metre cubed of water to the residents’ demand of 230,000 metre cubed. Some 29pc of the residents did not have access to toilets. Another study conducted two years earlier also indicated that the city had 350,000 houses while there was demand for additional 110,000 houses.

The city, by its own estimate, would need six billion Birr to solve its water problem in 20 years’ time. In addressing the housing problem, the city reveals it needs to build 50,000 housing units every year for five years. Arkebe’s administration had started ghe construction of condominiums with a three year strategic plan to supply 15,000 housing units. When he left office, however, only construction of 20,000 housing units was underway. Three and half years after Arkebe’s departure, the housing project is still lagging. To date, less than 50,000 people have been given houses out of a registered 452,000.

Addis Abeba’s budget requirement goes beyond 10 billion Br, but its revenue from all sources over the past five years has been far below that.

In 2004/05 the Revenue Agency planned to collect 2.3 billion Br, but achieved only 1.6 billion. Its targets for the following two fiscal years were 2.9 billion and 4.8 billion Br, what it achieved was a dismal 2.1 billion and 2.4 billion Br, respectively. In 2007/08 and 2008/09 fiscal years, the city went on with its ambitious planning, targeting 6.3 billion and 8.6 billion Br, but the achievements were 2.9 billion Br and four billion Br, respectively.

Kuma’s administration sounded confident, when it took over, that it would solve the city’s problems. The financial constraint, however, remains a very pressing problem.

“We are discussing with the federal government about how they could give us money,” said the city official who talked to Fortune.

It is not the first time the Administration started seeking help. In 2008/09 it had borrowed one billion Birr from the Ethiopian Telecommunication Corporation to narrow the budget gap it had. It has also borrowed 3.5 billion Br from the Commercial Bank of Ethiopia (CBE) over the past three years. Only a portion of CBE’s loan has been paid so far. Its attempts to get more loans had been thwarted by the government’s decree that limited loans to curb inflation.

The Administration is now mainly focused on getting support from the federal government. However, the federal government’s budget for the budgetary support to needy regions has also been growing. The government had allocated 14.3 billion Br for the 2007/08 fiscal year; that was up to 20 billion Br for the 2009/10.

The larger share of this support is to go to the Amhara, Oromia, Tigray and Southern regional states. the rest going to Dire Dawa, Harar, Benishangul Gumuz, Gambella, Afar and Somali regional states. For the 2009/10 fiscal year the government cut one per cent from the support given to the four large regional states and Harar and Dire Dawa, and granted it to the four back ward regions of Benishangul Gumuz, Gambella, Afar, and Somali.

their request is justified by the Addis Abeba Charter, which says that the city could get emergency and developmental support from the federal government, according to officials. The charter also says that where the developmental value of programmes is national in scope, the federal government will cover the necessary expenses.   Addis Abeba’s request to share a piece of the pie has not been answered yet, but the officials expect the federal government to get back to them with in a month.