The Federal Government's budget will exceed, for the first time, the Five Billion dollars mark, should the Council of Ministers accepts a budget bill submitted to it last week by Sufian Ahmed, minister of Finance and Economic Development (MoFED). Of course, it would need to be approved by Parliament before it goes for recession.

Sufian has proposed a record high of 54.3 billion Br in Federal Budget for the fiscal year 2008/2009, according to reliable sources. This amount, which exceeds the current budget by 21pc, has been attributed to price escalation of construction materials, salary expenditure, and increased demands from regional states in the form of federal subsidies, and a rise in recurrent expenditure, sources disclosed.
 

Indeed, the allocation for capital projects is likely to be 23.4 billion Br in the next fiscal year, up from nearly 19 billion Br, whereas subsidies to regional states will increase to 16.5 billion Br, up by 2.2 billion Br. The 10.8 billion Br recurrent budget is also likely to increase to 13.4 billion Br in the next fiscal year.

The request from the Ministry of Education was no different. From its nine billion Birr budget request, it is on the verge of securing a little over two billion Birr, a budget even lower than the 3.2 billion Br it received during the current fiscal year. ERA obtained 5.7 billion Br.

The proposed budget is expected to be financed by foreign aid, domestic and foreign borrowing, as well as from tax and non-tax incomes.

Impressively, the proposed budget demonstrates an administration highly disciplined in its budget financing from domestic sources. Its domestic borrowing has increased by a mere 200,000 Br from the 4.8 billion Br it has during the current fiscal year. This represents two per cent of the GDP, even much lower than the three per cent GDP the European Central Bank wants countries in the Euro Zone to adhere to.
 

"We kept the domestic borrowing low because we were advised by the IMF to do so," says an expert at the MoFED. "We initially had planned to make it seven billion Br."

A team of experts from the IMF was in Ethiopia, three weeks ago, to survey the Ethiopian economy before they made recommendations to the government on policy prescriptions that they think are fit for the health of the economy. Economists are wary of a budget that depends so much on domestic borrowing because it is presumed to fuel inflation.

Annual inflation peaked to nearly 20pc in April 2008, according to the Consumer Price Index (CPI) released by the Central Statistical Agency. Year-on-year inflation, however, is estimated to exceed 26pc, as opposed to the seven per cent annual inflation rate the government envisages for the five-year period ending 2010.
 

During a discussion with officials from the IMF, Ethiopia's economic policymakers have disclosed their target of containing monetary growth to less than 20pc so that inflation would not be a monetary phenomenon.
 

"We have put into place disciplinary measures, both in a fiscal and monetary framework," said a policy advisor to the government. "The budget stays within the disciplinary target of controlling inflation."
 

But policymakers admit that the current runaway inflation will take time to be subdued, perhaps showing a decline beginning September 2008.
 

"It will take time for inflation to come down," said the policy advisor. "It will come down, you can count on it."

Neither is the Federal Government's performance in revenue collection that bad. It has achieved nearly 94pc of what it had set out to collect in indirect and direct taxes during the three quarters of the budget year, according to the Ministry of Revenues.

By WUDINEH ZENEBE

SPECIAL TO FORTUNE