Parliament Receives Biggest Budget Bill, Debt Already First in Line

Jun 14 , 2026. By NAHOM AYELE ( FORTUNE STAFF WRITER )

The federal government's newly proposed 2.34 trillion Br fiscal plan would stretch across a large population where individual public spending power remains modest. In per capita terms, the new budget translates to an individual spending allocation of 107 dollars, placing Ethiopia six times lower than neighboring Kenya, which spends 632 dollars per capita, and well behind Uganda at 488 dollars, Tanzania at 335 dollars, and Burundi at 156 dollars.

Finance Minister Ahmed Shide walked into Parliament on Thursday, June 11, 2026, with the largest budget bill the country has ever seen, a 2.34 trillion Br plan burdened by weight.

Behind the record figure sits a federal government trying to service debt, keep regional states solvent, repair war-damaged institutions, sustain roads, health, and agriculture, and defend an economic reform programme in which public spending power remains modest. The bill is almost 400 billion Br higher than the current fiscal year’s budget, up nearly 21pc. Federal officials called it a plan for “consolidation, reform and investment,” designed to “preserve macroeconomic gains, finance priority development projects and keep the federation functioning.”

The budget has expanded rapidly in Birr terms, from 562 billion Br in the 2022/23 fiscal year to 971 billion Br in 2024/25 and 1.93 trillion Br in 2025/26, an average annual growth rate of about 51pc. The headline tells a fiscal leap. However, the larger number loses force once translated into foreign exchange, revealing a government running to stand still. In dollar terms, the increase is only 2.8pc. For nearly a decade, the federal budget has stayed between 13 billion dollars and 14.7 billion dollars. Eight years ago, it was about 13 billion dollars, leaving the increase over the period at 13pc.

For Mered Fikireyohannes, CEO of Pragma Capital, “meaningful growth becomes clearer when the budget is evaluated in foreign currency.”

In per capita terms, the budget has a spending of 107 dollars, six times lower than Kenya's 632 dollars, Uganda's 488 dollars, Tanzania's 335 dollars and Burundi's 156 dollars.

Federal recurrent expenditure is set at 1.23 trillion Br, representing 52.9pc of total spending. Capital expenditure receives 568.3 billion Br, accounting for 24.3pc of the budget, following a 36.8pc increase. Subsidies to 12 regional states and two city administrations total half a trillion Birr for the first time, with 520.6 billion Br allocated to regional capital projects tied to the Sustainable Development Goals (SDGs) and 14 billion Br allocated to other areas.

Together, the transfers reach 534.6 billion Br, almost equal to the federal capital budget.

According to Mered, the increase, about 65pc above the previous 315 billion Br allocation, “reflects continued dependence of regional governments on federal subsidies due to structural gaps.”

With revenue collection centralised and service obligations decentralised, the subsidy line remains the federation’s financial glue.

Oromia and Amhara regional states account for more than half of the subsidies to the federation's member states. The top four take almost three-quarters. Oromia Regional State receives 34.5pc of the regional pool, while Amhara Regional State follows with 112.4 billion Br (21.6pc). Somali Regional State receives 51.9 billion Br; South Ethiopia Regional State, 36.6 billion Br; Tigray Regional State, 31.4 billion Br; and Central Ethiopia Regional State, 30.9 billion Br. Addis Abeba City Administration, previously excluded, has been reinstated, although its allocation is less than a quarter of a billion Birr.

The distribution drew questions from federal lawmakers representing the newly established Southern Regional State after the former Southern Region was split into four. They pressed the Finance Minister on fairness.

According to Finance Minister Ahmed, his government was still applying an old formula that does not fully reflect the new regional configuration, and that the focus remains on paying to complete ongoing projects rather than launching new ones.

Domestic revenue is projected at 1.6 trillion Br, covering 68.9pc of federal spending. External assistance contributes 204.8 billion Br, and external loans add 193.7 billion Br. Domestic borrowing is projected at 329 billion Br, exceeding both grants and foreign loans. External loans and domestic borrowing create a borrowing requirement of 522.7 billion Br, equal to 22.3pc of the budget. Domestic borrowing alone covers 14.1pc.

Economists say the borrowing may be manageable if growth strengthens, inflation eases, and credit markets deepen. The risk is that the government becomes the borrower banks prefer when manufacturers, exporters and farmers need credit to respond to reform.

“A government borrowing heavily at home can become the safest and most attractive borrower in the system, crowding out private credit precisely when the reform agenda needs more private investment,” said a macroeconomist.

Abdulmenan Mohammed (PhD), a London-based financial analyst, called the outlook “very worrying.”

Federal revenue is expected to rise by 17.4pc, with the Administration of Prime Minister Abiy Ahmed (PhD) planning to collect 1.8 trillion Br, including external assistance, about 77pc of appropriated spending. The budget deficit is projected at 308.6 billion Br and will be financed mainly through domestic borrowing, 99pc of it by treasury bills (T-bills) and government bonds, with the balance through external debt.

"New and existing tax policy reforms will be vigorously implemented to fully utilise the government’s potential to generate revenue,” said the Finance Minister. He also disclosed that exemptions and tax holiday incentives would be reviewed.

“There is tax pressure in the country,” said Mered. “The federal government needs to do more to expand its tax base rather than heavily taxing salary and wage earners."

Tax collections are projected at 1.5 trillion Br, 92.5pc of domestic revenue. Foreign trade taxes and duties would supply 52.7pc of tax revenue. Income, profit, and capital gains taxes are projected at 427.5 billion Br, while domestic indirect taxes are projected at 278 billion Br. Import VAT alone is projected at 324.3 billion Br, customs duty at 255.6 billion Br, import excise at 144.7 billion Br, and surtax on imported goods at 61.4 billion Br.

Corporate profit tax is projected at 263 billion Br, wage and salary tax at 97.34 billion Br, and domestic VAT on goods and services at 225.5 billion Br.

Abraham Berta (PhD), an opposition MP from the Ethiopian Citizens for Social Justice (EZEMA), questioned whether the burden would fall too heavily on regular taxpayers, especially wage earners.

Abdulmenan warned that “a lot of pressure creates difficulties for citizens” and could make it “a tough time.”

In recurrent expenditure, fuel and fertiliser subsidies account for 19.1pc, while wage-related institutional spending takes 13.8pc. A category labelled “Others” totals 904.6 billion Br, 73.2pc of recurrent expenditure. Administration and general services receive 187.3 billion Br, social 126.4 billion Br, and economic sectors only 18.1 billion Br.

That “Others” line may contain debt service, pensions, contingencies, subsidies, state-enterprise support or federal obligations. Supplementary data show that debt service alone amounts to 542.1 billion Br, divided between 293.3 billion Br for external debt and 248.7 billion Br for domestic debt. Debt servicing accounts for 43.8pc of recurrent spending and nearly 30pc of the total budget, making it the bill’s strongest fiscal anchor.

Ethiopia’s total public debt was 52.75 billion dollars in 2025, of which 64.4pc was external. By last March, external and domestic debt had reached 51.8 billion dollars, with external debt at about 33.5 billion dollars. For the coming fiscal year, debt service allocations cover only about 6.5pc of the debt stock, but repayment remains one of the largest budget items.

“The money allocated to service debt is huge, it’s a necessary evil” Mered said.

Debt service is nearly equal to regional subsidies and larger than the capital allocation for social development. It consumes more than 36pc of projected tax revenue.

Ahmed argued that much of the debt was inherited from state enterprises and inefficient projects, including state corporations such as the Ethiopian Railways and Sugar Corporations, whose debts were transferred to the Ministry of Finance. Shocks from COVID-19, the Russia-Ukraine war, and the war in northern Ethiopia for deepening the pressure. Since 2019, the federal government has directly advanced close to 800 billion Br to manage fiscal disruptions.

On external debt, Ahmed disclosed restructuring talks with lenders continue, except for Eurobond holders, who account for about 10pc of total debt, and voiced confidence that the "issues could also be resolved."

In the capital budget front, economic development receives 56pc of capital spending. Social development gets 29.6pc, while general development takes 50 billion Br. “Others” receives 31.7 billion Br.

The largest allocation for a federal agency is for the Ethiopian Roads Administration, at 121.8 billion Br. Roads, higher education, irrigation, water supply and sanitation, and job creation remain stated priorities. Funds are reserved to repair war-damaged university infrastructure, including at Wollo and Woldia universities, while the National Rehabilitation Commission receives one billion Birr for rehabilitation projects for ex-combatants.

The budget authors plan for treasury financing to cover 424.2 billion Br (74.7pc) of the capital budget. External assistance provided 112.6 billion Br, and external loans 30.9 billion Br. The treasury carries most of the development programme while servicing debt and financing regional transfers. External assistance totals 204.8 billion Br, while external loans reached 193.7 billion Br, including 162.8 billion Br in direct budget support from the IMF, World Bank, Italy and France.

Desalegn Chanie (PhD), an opposition lawmaker (NaMA), argued that recurrent expenditure still dominates capital spending and questioned the Finance Minister when public spending would shift from bureaucracy toward citizens’ livelihoods. Ahmed retorted that the budget for public offices is only 170.8 billion Br, which he said is small compared with capital expenditure.

“The budget allocated under the recurrent budget for fertiliser and fuel subsidies actually reaches every single person,” he said.

The budget bill is a pincer document, caught between the political necessity of subsidies, rehabilitation, and public services on one side, and debt service, domestic borrowing restraint, and revenue mobilisation on the other. It was referred to the Budget & Finance Affairs Standing Committee, chaired by Desalegn Wedaje, before the current federal legislature's term ends.

PUBLISHED ON Jun 14,2026 [ VOL 27 , NO 1363]