Ethiopia: Council of Ministers approves ETB 582bn supplementary budget for FY 2024/25

• Total revised federal budget will increase to ETB 1,553.18bn, no details provided on the financing plan
• Original budget deficit was projected at 2.1% of GDP, likely to widen post supplementary budget approval
• Medium-Term Macroeconomic and Fiscal Framework for 2024-2029 endorsed
• Bills on solid waste, water body protection, and accounting standards forwarded for legislative approval

Ethiopia's Council of Ministers approved a supplementary budget of ETB 581.98bn (USD 4.6bn) for the 2024/25 FY, according to local media reports. The budget aims to address additional funding needs and cost adjustments, ensuring alignment with the newly endorsed Medium-Term Macroeconomic and Fiscal Framework for 2024-2029. The council endorsed a comprehensive macroeconomic and fiscal framework, which will drive Ethiopia's economic reforms from 2024 through 2029. The framework will steer fiscal policy adjustments, guiding future budgetary allocations and government spending in line with expected revenues. This framework, which will guide Ethiopia's second phase of economic reforms, also informed the supplementary budget decisions. The budget proposal was referred to the House of Peoples' Representatives for final approval. We note that government has not yet released any details on the anticipated deficit including revenue and expenditure sides as a result of this fiscal expansionary move.

We recall that in July, Parliament unanimously?approved?a federal budget of ETB 971.2bn (USD 7.8bn) for the 2024/25 FY (effected 8 Jul). The budget was structured to support rapid, equitable, and sustainable development, aligns with the country's ten-year master development plan, the media noted. The allocated funds included ETB 451.3bn for recurrent expenditures, ETB 283.2bn for capital expenditures, ETB 222.7bn in support to regional states, and ETB 14bn designated for sustainable development goals. The approved supplementary budget raises the total federal budget for the 2024/25 FY to ETB 1,553.18bn, up from the initial ETB 971.2bn. While the government has not yet provided details on the revised financing plan, the original budget anticipated a deficit of 2.1% of GDP. Given the significant increase in expenditures, the deficit is likely to widen unless matched by corresponding increases in revenue or adjustments in other financial strategies. We further recall according to earlier reports, revenue projections under the original budget for the FY initially targeted ETB 613bn, including ETB 502bn tax revenue, ETB 62bn non-tax revenue and ETB 42bn grants, with additional measures aimed at controlling borrowing from the National Bank of Ethiopia. However, the lack of clarity on the supplementary budget's funding plan raises concerns about potential increases in borrowing or reliance on external financing, which could further strain the fiscal balance.

Consequently, the deficit under the original budget was seen at ETB 359bn in nominal terms, up from 227bn in the current year. The original financing plan envisaged non-inflationary domestic borrowing such as the issuance of T-bills and medium-term bonds, as well as external borrowing. The budget framework assumed growth will pick up to 8.4% y/y in the next FY 2024/25 from 7.9% y/y in the current year.

Council reviewed several bills

In addition to the supplementary budget, the council reviewed several bills:

1. A bill to establish the Institute of Certified Accountants in Ethiopia to improve financial reporting in both public and private sectors. The bill was sent to the House of Representatives for approval.
2. A bill to address solid waste management, including a ban on single-use plastics, to support Ethiopia's Green Legacy Program. The bill was forwarded for legislative approval.
3. The council also endorsed measures to protect Ethiopia's water bodies, approving a bill for their sustainable development. The establishment of a High Council of Basins will oversee the management of water resources, promoting integrated and sustainable usage across the country. This bill was also sent to the House of Representatives for further action.

The series of reforms and fiscal decisions reflect Ethiopia's continued commitment to economic sustainability and environmental health.