Ethiopia Raises 2019-20 Budget by 1.6% to Boost Economic Growth

ADDIS ABABA (Capital Markets in Africa) – Ethiopia plans to increase 2019-20 spending by 1.6% to fund projects that will help boost the Horn of Africa country’s economic expansion.

Spending plans for the year starting July will expand to 386.9 billion birr ($13.4 billion), Ethiopian Finance Minister Ahmed Shide said in a recording of parliament proceedings aired on ruling party-controlled Fana Television. That will probably help the economy grow by 9%, according to Shide.

Ethiopia, which the International Monetary Fund says has the fastest-growing economy in Africa, needs to refinance maturing debt, fund infrastructure projects, pay wages and boost foreign-currency reserves. The IMF in December estimated the country’s public debt would be 57.2% of gross domestic product in the fiscal year to July 7 and forecast the current-account deficit at 6.2% of GDP.

The government will spend 130.7 billion birr on capital projects including power plants and roads, 109.5 billion birr on recurrent expenditure and 140.8 billion birr will go to regional authorities. Most of the capital spending will go to “completion of already existing projects,” and “only a few new additional projects,” Shide said.

Tax Challenge
The government’s target is to raise 289.8 billion birr, or about 75% of total planned expenditure, from tax collections and other revenue sources to fund the budget. It plans to plug the gap with domestic loans of 56.8 billion birr and raise 40.3 billion birr from foreign project financing.

The government acknowledges the challenge of meeting the tax target, and will focus on increasing collections in the next fiscal year. In the first 10 months of the year ending July 7, authorities got less than half of the 211 billion birr they set out to collect for the entire period, according to Shide.

The country’s imports will increase by 11% and boost tax revenue, Shide said. That will however put pressure on the birr, and could lead it to depreciate by as much as 6% to 29.74 against the dollar, he Shide.

Source: Bloomberg Business News