MoF proposes 17% increase in upcoming budget year

The deficit of the tabled upcoming year’s budget is widened from the universally recommended three percent of the GDP. The tax collection for the current budget year is expected to stand at 294 billion birr which is about 12 percent lower than the projection set about a year ago.
During his Budget Speech, Ahmed Shide, Minister of Finance (MoF), told parliament on Tuesday June 7 that from the proposed 786.6 billion birr budget for the 2022/23 budget year, the gap is 231.4 or over 29 percent of the proposed budget which will be covered by domestic and external sources.
He said that the budget deficit was 3.4 percent of the GDP, “the budget deficit has shown some increment in comparison to the preceding periods. The gap is widened due to the need for coverage in crucial areas in the upcoming budget year.”
According to Ahmed the major portion, 224.5 billion birr of the budget deficit will be covered by local sources whereas the remaining 6.9 billion birr will be sourced from foreign creditors.
Based on the deficit that will be covered from domestic source, it is stated to be 3.3 percent of the GDP.
The country has been strongly pursuant in controlling the budget deficit up to three percent of the GDP, which is of high recommendation even by international standards and partners.
However, the latest pressures bagged by COVID 19, internal distraction and international partners, some of whom paused their pledges because of the northern conflict, the government is forced to look for additional resources from local financers like taking direct advance from the central bank, which experts recommended that taking huge amounts of money from the central bank would have a ripple effect on the economy including galloping the inflation.
However, the central government has been strongly controlling itself from taking finance from the central bank and has shifted to the finance amassed from alternative instruments like treasury bills. While the conflict which occurred in the northern part of the country followed by massive distraction mainly carried out by the outlawed former ruling party TPLF forced the central government to access finance from direct advance from the central bank particularly in this budget year.
For the coming budget year, the central government has also disclosed that it has allocated huge amount of budget for construction projects which were damaged by the conflict.
From the total proposed budget, 400 billion birr or 84 percent is expected to be secured from tax revenue. The estimated tax collection has an increment of 19.8 percent compared with the projected tax collection for the 2021/22 budget year that will come to an end on July 7.
However, MoF disclosed that the actual attainable tax collection on the current budget year will be 294 billion birr that has a reduction of about 12 percent from the projection.
The 2022/23 budget year tax collection projection will have an increment of 36.1 percent compared with the estimated actual collection of this year.
In the coming budget year, the government has set to implement tax reforms to attain the targeted revenue.
Ahmed said that the reform on VAT, excise tax, and introduce property tax are some of the new reforms that will be seen in the coming budget year.
In the 2022/23 budget year, the economy is expected to change its due course tracking to its projection stated under the ten years economic strategy; to grow by 9.2 percent.
MoF has also disclosed that the inflation rate that reached 36.6 percent as per April’s monthly inflation figure is estimated to reduce to 11.9 percent in the coming budget year.