VZCZCXRO6125
RR RUEHROV
DE RUEHDS #1907/01 2180946
ZNR UUUUU ZZH
R 060946Z AUG 09
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 5793
INFO RUCNIAD/IGAD COLLECTIVE
RUEPADJ/CJTF HOA
RUEAIIA/CIA WASHINGTON DC
RUEKDIA/DIA WASHINGTON DC
RUEWMFD/HQ USAFRICOM STUTTGART GE
RUEKJCS/JOINT STAFF WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 ADDIS ABABA 001907 
 
SIPDIS 
 
DEPARTMENT FOR EEB/IFD/OMA - JWINKLER AND EEB/CBA - DWINSTEAD 
USTR FOR PATRICK COLEMAN, CECILIA KLEIN, AND BARBARA GRYNIEWICZ 
DEPT OF COMMERCE WASHDC FOR ITA MARIA RIVERO 
DEPT OF TREASURY WASHDC FOR REBECCA KLEIN 
 
E.O. 12958: N/A 
TAGS: ECON EFIN BEXP ETRD EINV EAGR ET
SUBJECT: PARLIAMENT PASSES 2009/10 FEDERAL BUDGET 
 
REF: 2008 ADDIS 3462 
 
ADDIS ABAB 00001907  001.2 OF 002 
 
 
¶1. (U) SUMMARY:  The Ethiopian Parliament passed a federal budget of 
64.5 billion birr (USD 5.2 billion) for the 2009/10 fiscal year, 
representing an 18.9 percent increase in nominal terms from last 
year.  The recurrent budget increased by 14.9 percent, while federal 
subsidies to regional states increased by 20.1 percent.  The 
national defense budget did not change, while capital expenditures 
grew by 24.3 percent, with increases going to infrastructure, 
energy, and agricultural development.  The (GoE) defines more than 
41 percent of the total budget as "pro-poor" spending, including 
funding for agriculture and natural resources development, road 
construction, education, health services, and energy.  The GoE plans 
to finance 62 percent of the budget from domestic revenue, 22 
percent from external assistance, and the balance from foreign and 
domestic borrowing.  The stated objectives of the budget are to 
contain inflation, ensure the economic growth witnessed in recent 
years, and enhance development efforts.  The majority of complaints 
from opposition party members stemmed from their concerns on the 
increases for defense, intelligence, and law enforcement spending. 
End Summary. 
 
------------------- 
THE BUDGET IN BRIEF 
------------------- 
 
¶2. (U) Ethiopia's 2009/10 federal budget (July 2009 - July 2010) 
totals 64.5 billion birr (USD 5.2 billion), increasing 18.9 percent 
in birr terms from 2008/09.  Although the new budget is higher than 
last year's measured in local currency, it decreased by 8.3 percent 
in dollar terms due to significant depreciation of the birr.  (Note: 
 The government depreciated the local currency against the US dollar 
by nearly 30 percent during the previous fiscal year.  End note.) 
The budget does not include regional governments' budgets from their 
own revenues, state-owned enterprise budgets, or off-budget donor 
contributions.  The budget includes capital expenditures of 29.1 
billion birr (USD 2.3 billion) and a recurrent budget of 35.4 
billion birr (USD 2.8 billion), including subsidies to the regional 
states of 20.9 billion birr (USD 1.7 billion).  Major capital budget 
items include road construction, agriculture and natural resources 
development, education, health services, and energy.  Sources of 
funding for the capital budget are the central treasury (66.7 
percent), foreign assistance (21 percent), and external project 
loans (12.3 percent). 
 
¶3. (U) The recurrent budget is 35.4 billion birr, a 14.9 percent 
increase from last year in birr terms.  Major spending items 
include: subsidies to regional states at 20.9 billion birr (a 20.1 
percent increase) and administration and general services at 1.8 
billion birr (a 9.6 percent increase).  The latter includes spending 
on national defense (4 billion birr), social services (3.1 billion 
birr), and economic services (888 million birr).  Debt servicing 
will cost 3.3 billion birr (80 percent of which is domestic debt, 
and 20 percent is foreign debt).  The central treasury will finance 
96.1 percent of the recurrent budget, with the balance from external 
assistance and loans. 
 
¶4. (U) Total domestic revenue is projected at 39.7 billion birr, of 
which tax revenue accounts for 30.2 billion.  Non-tax revenue (e.g., 
licensing fees, service charges, residual surplus payables from 
government investments, interest income, capital gains) accounts for 
the remainder.  Planned foreign budget assistance totals 14.6 
billion birr, including 7.1 billion birr from the World 
Bank-supported Protecting Basic Services (PBS) program (reftel). 
The deficit will be financed by foreign gross project loans (3.8 
billion birr), HIPC relief (118 million birr), and domestic 
borrowing (6.5 billion birr). 
 
--------------------------- 
ISSUES RAISED BY OPPOSITION 
--------------------------- 
 
¶5. (U) Finance Minister Sufian Ahmed presented the proposed budget 
to the House of Peoples' Representatives on July 6, 2009.  Minister 
Sufian explained that the major objectives of the budget are 
containing inflation, sustaining strong economic growth, improving 
health and education, and enhancing development.  Many opposition 
members of parliament voiced their concerns over the increased 
budgets for defense, intelligence, and law enforcement agencies. 
 
ADDIS ABAB 00001907  002.2 OF 002 
 
 
Legesse Biratu (Coalition for Unity and Democracy Party) proposed 
cutting the defense budget by 1.5 billion birr and re-allocating the 
balance to the purchase of food and medicine for drought victims. 
Mohamed Ali (Unity for Democracy and Justice Party) expressed 
disappointment at the small budget allotted to the Office of 
Ombudsman and the Ethiopian Human Rights Commission.  To this, Prime 
Minister Meles Zenawi responded that the commission is not a 
frontline organization safeguarding human rights such as the police 
force and the courts.  Gebru Gebremariam (United Ethiopian 
Democratic Forces) suggested that such a large defense budget is 
unnecessary now that the army is no longer deployed in Somalia. 
Lidetu Ayalew (Ethiopian Democratic Party) voiced his concerns about 
balancing the budget and inflation. 
 
¶6. (U) Minister Sufian stated that volatile situations in Eritrea, 
Somalia, and Sudan justify the defense budget.  Prime Minister Meles 
said the budget would ensure that economic growth continues at the 
rate experienced over the last six years.  He further noted that 70 
percent of the total budget is allotted for capital expenditures 
that will benefit the poor.  "No other African country is setting 
aside such a pro-poor budget allocation," said Meles, adding: "We 
are efficiently utilizing our meager financial resources to bring 
about rapid economic development."  The Prime Minister described 
foreign assistance as unreliable, adding that Ethiopia will 
disassociate itself from countries that place conditions on 
assistance that are not compatible with Ethiopia's ideological 
foundations.  He further noted that the GoE's prioritization of 
agricultural development over industry is the best cure for 
Ethiopia's poverty.  Despite opposition criticism, the budget passed 
by an overwhelming majority, with 19 abstentions and no votes 
against. 
 
---------------------- 
THE BUDGET AT A GLANCE 
---------------------- 
 
¶7. (U) A summary of the budget is included below: 
 
                           2009/10          Increase 
                           Budget         from 2008/09 
                       (Birr billions)     (Percent) 
                       ------------------------------- 
Total Budget:                  64.5           18.9 
Recurrent Budget:              35.4           14.9 
  Subsidies to Regions:        20.9           20.1 
  Administration:               1.8            9.6 
  Defense:                      4.0            0.0 
  Debt service                  3.3         (1.4) 
 
Capital Expenses:              29.1           24.3 
  Road Construction:           11.7           52.9 
  Agriculture and 
  Rural Development:            5.2            4.3 
  Education:                    5.5           13.6 
  Health:                       1.9           7.9 
  Mining and Energy:            0.2 
 
Total Domestic Revenue:        39.7           24.0 
  Taxes:                       30.2           19.0 
  Non-Tax Income:               9.3           44.0 
 
Total External Assistance      14.6            9.2 
 
Financing              10.2          1.6 
  Domestic Borrowing            6.5           26.1 
  Foreign Borrowing             3.8            7.1 
 
 
¶8. (U) Further detail is available from the Ministry of Finance and 
Economic Development at http://mofaed.org/. 
 
GONZALES