The central bank released its much-anticipated report for the second quarter last week, albeit it did so almost five months later than it was initially expected to. It was not like any other, covering a period when the administration of Prime Minister Abiy Ahmed (PhD) took measures that were both profound and consequential.

Shrouded in piles of numbers is a change in the federal government's budget utilisation, which has seen retrenchment in capital spending, perhaps due to circumstances difficult to foresee during the budget planning period last year. There has been a drastic increase in recurrent expenditures, at 41.1 billion Br by the end of the second quarter, what was paid to general services claimed close to half of what has been allotted for the whole year.

What stands out is spending on defence, which has seen a drastic increase in the second quarter to 16.4 billion Br, an amount only 49 million Br less than the entire annual budget slated for defence and 54pc higher than what was spent over the same period last fiscal year. Historically, a fourth of the annual budget would be disbursed every quarter, as the case was during the first quarter of the budget year when a little lower than two billion Birr was apportioned.

This signifies the tremendous attention given to security matters, with the country in the midst of a civil war in Tigray Regional State. But this comes at a cost.

The federal government has yet to spend even half of what it did on economic development and social services during the same period last year.

Out of the 168 billion Br budget apportioned this year for economic development, only a third of it had been utilised by the end of the second quarter, seven percentage points lower than what was expended during the same period last year. Spending on mines and energy; trade, industry and culture; as well as urban development and roads construction, have all dwindled.

According to Wasihun Belay, a development economist with over a decade of experience, these are not just figures flying around.

They reveal a sudden alteration in the macroeconomic situation of the country, which could suffer more if the same trend has continued in federal government spending during the final two quarters of the year.

“If recurrent spendings grew higher than capital investment, it shows that the budget allotted for development projects is being used to cover administrative expenses," said Wasihun. "It's a disservice to the economy.”

In the absence of an official explanation for the quiet move away from capital investments and the emphasis on recurrent spendings, economic pundits believe it is an attempt to finance a budget deficit without massive borrowing from the central bank. The federal government was hoping to limit its borrowing to pay for the deficit at 126 billion Br, which was projected to account for 3.1pc of the GDP, though the amount is expected to be much higher than this in light of the additional budget approved last week. This is far from the 2.4pc average for the past decade, leaving macroeconomic analysts worried about the financing mechanism.

Then comes the war in Tigray, compelling the federal government to use the defence budget for the whole year within just six months, signalling that the federal budget deficit will be much larger than what was initially thought.

However, macroeconomic policymakers continue to pretend it is business as usual, considering the budget bill approved by the Council of Ministers two weeks ago. The 561 billion Br in the federal budget for the fiscal year 2021/22 emphasises capital expenditure, representing 33pc and four percentage points larger than that apportioned to recurrent spendings.

More capital expenditure signifies higher investments in public infrastructure, according to Abdulmenan Mohammed, a financial expert with almost two decades of experience, who is worried about the narrowing of the gap between the recurrent and capital expenditure year after year.

"When its shares decline, it means there are development projects that have been cut, a situation that has happened in the first six months of the current fiscal year for apparent reasons," he said.

The conflict in Tigray and the instability across the country, if not COVID-19, have already increased the recurrent expenditure of the government, a situation which is likely to continue in the upcoming financial year.

Little change on the ground this year also means a tighter budget squeeze, further complicating financing the federal budget deficit. It is projected to reach 125.7 billion Br in the budget bill before parliament, a two percent increase from the preceding fiscal year.

During the next fiscal year, around two-thirds of the budget is planned to be covered by domestic revenues, while 22pc is to be financed through borrowing from foreign and domestic sources, and the remaining 12pc from foreign grants.

The budget assumes an economic growth three times larger than the two percent the IMF projects; where inflation is kept at bay; capital investments increase; and domestic revenue mobilisation grows by more than five percent while businesses are affected by a series of developments. With the ongoing situation across the country, which makes revenue collection difficult, doing so will not be easy. The reasons are obvious.