PARLIAMENT PASSES 2009/10 FEDERAL BUDGET

UNCLAS SECTION 01 OF 02 ADDIS ABABA 001907

SIPDIS

DEPARTMENT FOR EEB/IFD/OMA - JWINKLER AND EEB/CBA - DWINSTEAD
USTR FOR PATRICK COLEMAN, CECILIA KLEIN, AND BARBARA GRYNIEWICZ
DEPT OF COMMERCE WASHDC FOR ITA MARIA RIVERO
DEPT OF TREASURY WASHDC FOR REBECCA KLEIN

E.O. 12958: N/A
TAGS: ECON EFIN BEXP ETRD EINV EAGR ET
SUBJECT: PARLIAMENT PASSES 2009/10 FEDERAL BUDGET

REF: 2008 ADDIS 3462

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1. (U) SUMMARY: The Ethiopian Parliament passed a federal budget of
64.5 billion birr (USD 5.2 billion) for the 2009/10 fiscal year,
representing an 18.9 percent increase in nominal terms from last
year. The recurrent budget increased by 14.9 percent, while federal
subsidies to regional states increased by 20.1 percent. The
national defense budget did not change, while capital expenditures
grew by 24.3 percent, with increases going to infrastructure,
energy, and agricultural development. The (GoE) defines more than
41 percent of the total budget as "pro-poor" spending, including
funding for agriculture and natural resources development, road
construction, education, health services, and energy. The GoE plans
to finance 62 percent of the budget from domestic revenue, 22
percent from external assistance, and the balance from foreign and
domestic borrowing. The stated objectives of the budget are to
contain inflation, ensure the economic growth witnessed in recent
years, and enhance development efforts. The majority of complaints
from opposition party members stemmed from their concerns on the
increases for defense, intelligence, and law enforcement spending.
End Summary.

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THE BUDGET IN BRIEF
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2. (U) Ethiopia's 2009/10 federal budget (July 2009 - July 2010)
totals 64.5 billion birr (USD 5.2 billion),increasing 18.9 percent
in birr terms from 2008/09. Although the new budget is higher than
last year's measured in local currency, it decreased by 8.3 percent
in dollar terms due to significant depreciation of the birr. (Note:
The government depreciated the local currency against the US dollar
by nearly 30 percent during the previous fiscal year. End note.)
The budget does not include regional governments' budgets from their
own revenues, state-owned enterprise budgets, or off-budget donor
contributions. The budget includes capital expenditures of 29.1
billion birr (USD 2.3 billion) and a recurrent budget of 35.4
billion birr (USD 2.8 billion),including subsidies to the regional
states of 20.9 billion birr (USD 1.7 billion). Major capital budget
items include road construction, agriculture and natural resources
development, education, health services, and energy. Sources of
funding for the capital budget are the central treasury (66.7
percent),foreign assistance (21 percent),and external project
loans (12.3 percent).


3. (U) The recurrent budget is 35.4 billion birr, a 14.9 percent
increase from last year in birr terms. Major spending items
include: subsidies to regional states at 20.9 billion birr (a 20.1
percent increase) and administration and general services at 1.8
billion birr (a 9.6 percent increase). The latter includes spending
on national defense (4 billion birr),social services (3.1 billion
birr),and economic services (888 million birr). Debt servicing
will cost 3.3 billion birr (80 percent of which is domestic debt,
and 20 percent is foreign debt). The central treasury will finance
96.1 percent of the recurrent budget, with the balance from external
assistance and loans.


4. (U) Total domestic revenue is projected at 39.7 billion birr, of
which tax revenue accounts for 30.2 billion. Non-tax revenue (e.g.,
licensing fees, service charges, residual surplus payables from
government investments, interest income, capital gains) accounts for
the remainder. Planned foreign budget assistance totals 14.6
billion birr, including 7.1 billion birr from the World
Bank-supported Protecting Basic Services (PBS) program (reftel).
The deficit will be financed by foreign gross project loans (3.8
billion birr),HIPC relief (118 million birr),and domestic
borrowing (6.5 billion birr).

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ISSUES RAISED BY OPPOSITION
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5. (U) Finance Minister Sufian Ahmed presented the proposed budget
to the House of Peoples' Representatives on July 6, 2009. Minister
Sufian explained that the major objectives of the budget are
containing inflation, sustaining strong economic growth, improving
health and education, and enhancing development. Many opposition
members of parliament voiced their concerns over the increased
budgets for defense, intelligence, and law enforcement agencies.

ADDIS ABAB 00001907 002.2 OF 002


Legesse Biratu (Coalition for Unity and Democracy Party) proposed
cutting the defense budget by 1.5 billion birr and re-allocating the
balance to the purchase of food and medicine for drought victims.
Mohamed Ali (Unity for Democracy and Justice Party) expressed
disappointment at the small budget allotted to the Office of
Ombudsman and the Ethiopian Human Rights Commission. To this, Prime
Minister Meles Zenawi responded that the commission is not a
frontline organization safeguarding human rights such as the police
force and the courts. Gebru Gebremariam (United Ethiopian
Democratic Forces) suggested that such a large defense budget is
unnecessary now that the army is no longer deployed in Somalia.
Lidetu Ayalew (Ethiopian Democratic Party) voiced his concerns about
balancing the budget and inflation.


6. (U) Minister Sufian stated that volatile situations in Eritrea,
Somalia, and Sudan justify the defense budget. Prime Minister Meles
said the budget would ensure that economic growth continues at the
rate experienced over the last six years. He further noted that 70
percent of the total budget is allotted for capital expenditures
that will benefit the poor. "No other African country is setting
aside such a pro-poor budget allocation," said Meles, adding: "We
are efficiently utilizing our meager financial resources to bring
about rapid economic development." The Prime Minister described
foreign assistance as unreliable, adding that Ethiopia will
disassociate itself from countries that place conditions on
assistance that are not compatible with Ethiopia's ideological
foundations. He further noted that the GoE's prioritization of
agricultural development over industry is the best cure for
Ethiopia's poverty. Despite opposition criticism, the budget passed
by an overwhelming majority, with 19 abstentions and no votes
against.

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THE BUDGET AT A GLANCE
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7. (U) A summary of the budget is included below:

2009/10 Increase
Budget from 2008/09
(Birr billions) (Percent)
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Total Budget: 64.5 18.9
Recurrent Budget: 35.4 14.9
Subsidies to Regions: 20.9 20.1
Administration: 1.8 9.6
Defense: 4.0 0.0
Debt service 3.3 (1.4)

Capital Expenses: 29.1 24.3
Road Construction: 11.7 52.9
Agriculture and
Rural Development: 5.2 4.3
Education: 5.5 13.6
Health: 1.9 7.9
Mining and Energy: 0.2

Total Domestic Revenue: 39.7 24.0
Taxes: 30.2 19.0
Non-Tax Income: 9.3 44.0

Total External Assistance 14.6 9.2

Financing 10.2 1.6
Domestic Borrowing 6.5 26.1
Foreign Borrowing 3.8 7.1



8. (U) Further detail is available from the Ministry of Finance and
Economic Development at http://mofaed.org/.

GONZALES