BUDGETARY TIGHTROPE STROLL!

Jun 15 , 2024. By MUNIR SHEMSU ( FORTUNE STAFF WRITER )

The federal government unveiled a 971.6 billion Br budget bill for the upcoming fiscal year, while the economy is under dual pressures to ensure stability and achieve growth. Finance Minister Ahmed Shide stressed fiscal discipline and controlled expenditures, but the figures reveal a country in the throes of macroeconomic turmoil. With domestic debt servicing costs skyrocketing and hopes pinned on external debt restructuring after the country's first-ever default earlier this year, the budget’s 21.1pc expansion is overshadowed by a 21.9pc increase in recurrent expenditures, comprising nearly half of the total budget. As officials tout reforms at stabilising the foreign currency regime and aligning the official and parallel exchange rates, critics lambasted the effectiveness of these measures, particularly cautioning against impending devaluation, feared to impact low- and fixed-income households disproportionately.

The broader economic landscape remains a tough nut to crack. High-level negotiations with the IMF over a potential bailout are contingent on reforms, including liberalising the foreign currency market — an area where Ethiopia's track record is less than stellar. Domestic borrowing is at unprecedented levels, with commercial banks stretched thin under mandatory central bank bond purchases and treasury bill auctions. Despite the central bank's strategies to cap credit and hike lending rates, inflation stubbornly hovers at 23pc. As the government juggles infrastructure spending, regional subsidies, and debt management, the success of these efforts will determine whether the administration of Prime Minister Abiy Ahmed (PhD) can navigate the treacherous path toward economic stability or spiral further into economic distress.

PUBLISHED ON Jun 15,2024 [ VOL 25 , NO 1259]