Ethiopian Business Review

Nation Revises Subsidy Formula, Prepares Close to 179 Billion Birr Budget for 2014/15

Exactly a year after the Population and Housing Census Commission unveiled the results of inter census population sample survey, the House of Federation on May 30, 2014,  approved a revised federal subsidy budget allocation formula for regions. The new formula will be used starting from the next fiscal year up to 2016/17.

The existing budget formula, which was approved three years ago, was supposed to last until 2015/16. However, due to the controversy about the exact population size of the Amhara Region, the House of Federation decided the Population and Housing Census Commission to check the results of the 2007 national census survey using inter census population sample survey. The population of Amhara Region has been estimated as 17.2 million giving an average annual growth rate of 1.7Pct since 2007 census. However, the inter census report published by the Central Statistical Agency last year reveals that during the five years prior to the inter census survey the Amhara population grew by 2.3Pct annually. Because of this close to 500,000 people were uncounted and not considered in the subsidiary budget distributions.

RegionNewPreviousDifference (%)
Tigray 7.15 7.18 -0.03
Afar 3.12 3.15 -0.03
Amhara 23.24 23.17 +0.07
Oromia 32.45 32.50 -0.05
Ethiopian Somali 8.12 8.14 -0.02
Benishangul-Gumuz 2.15 2.10 +0.05
SNNP 20.11 20.10 +0.01
Gambela 1.50 1.50 *
Harari 1.00 1.00 *
Dire Dawa 1.16 1.16 *

The recently approved budget formula, however, corrected this miscalculation and granted the Amhara Region additional 0.07Pct while Benishangul-Gumuz also gained a 0.05Pct increment when allocation of the subsidies by the federal government is made. “Although it took almost five years, it is a great gain for Amhara Region to be able to increase its share in the federal budget subsidy formula,” Tilahun Bogale (PhD), who has been involved in the preparation of the previous budget appropriation formula in 2009, told EBR. Starting from the next year, Amhara Region will enjoy 23.24Pct of the total regional budget subsidy from the federal government. 

Even though Oromia lost 0.05Pct of its share, it will continue to receive the largest budget subsidy from the federal government. Beginning from 2014/15 fiscal year, the region will be entitled to 32.45Pct of the total budget subsidy. Ethiopian Somali’s share also went from 8.14Pct down to 8.12Pct. 

Benishangul-Gumuz and Southern Nations, Nationalities and Peoples’ (SNNP) regions gained 0.05 and 0.01Pct, respectively. From now on, Benishangul-Gumuz will enjoy 2.15Pct of the regional subsidy budget while SNNP take 20.11Pct. The share of Gambela and Harari regions as well as Dire Dawa remained the same.

In the current fiscal year, the federal government allocated 43.1 billion Birr in subsidies, of which 32Pct; 13.9 billion birr went to Oromia. Amhara, SNNP, Ethiopian Somali, and Tigray regions received 9.9 billion, 8.6 billion, 3.5 billion, and 3.1 billion Birr, respectively.

For the coming Fiscal year 2013/14 the Council of Ministers has passed a budget bill, pending for the approval by the parliament which comprises a federal budget that amounts 178.6 billion Birr, a 15.3Pct increase from 154.9 billion approved for the current fiscal year. A total of 51 billion Birr will go to regional subsidy where as close to 70 and 45 billion Birr of this budget will be for capital expenditure and recurrent spending, respectively. The rest about 15 billion is slotted for programs under the MDGs.

The previous formulas for the allocation of budget subsidies to the regional states, which sometimes called unconditional budget grants, has been developed based on the findings of a detailed quantitative assessment of the population size, the relative expenditure needs and revenue raising potentials of the regions. In an attempt to redress the imbalances among the developed and the less developed regions, one percent of the total subsidy budget will go to Somali, Benishangul-Gumuz, Afar, and Gambella regions unconditionally. The only variable changed in the new formula is the population, which is changed by the results of the inter census report.

2nd Year . July 2014 . No.16

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