Ethiopia set to boost tax earning by a billion dollar


By Andualem Sisay Gessesse –

The government of Ethiopia says it has increased the national budget of the country for the budget year started last month expecting a 25 billion birr (around $1.1) increase in tax collection.

Hoping to meet its tax collection target, the country recently has approved close to 320 billion birr (close to $14 billion) national budgets for this budget year, which is 46 billion birr (around $2 billion) more than the previous year.

This is indicated by Mr. Haji Ibsa, Public Relation and Communication Director of the Ministry of Finance and Economic Cooperation of Ethiopia (MOFEC) who briefed reporters this afternoon.

Meanwhile the country’s plan may not be attained as many tax payers in small businesses and the informal economy are protesting the tax authorities’ estimate of their earnings since last month.

Commenting on the issue, Mr. Haji stated that the tax authorities are resolving the issue. Besides the government’s plan to boost tax earning will not be affected because the tax contribution of the people engaged in those businesses represents only 20% of the total taxpayers.

In addition to tax income, foreign loans and aid, the government has been filling budget deficit by local loans. Last the budget deficit of the country was 2.4% and this year it has slightly grown to 2.5% of the total budget, according to Mr. Haji.

Debt burden
During the 12 months of the budget year ended July 8, 2016, Ethiopian government has secured a total of close to 79 billion birr (around $3.4 billion), of which around 51 billion birr (around $2.2 billion) is loan and close to 28 billion birr (around $1.2 billion) is aid.

Haji noted that the loan and aid commitment by bilateral and multilateral donors and lenders for the period was close to 99 billion birr (around $4.3 billion).

The total loan of the federal government is now $23 billion, according to Mr. Haji, who noted that the figure doesn’t include major government companies, such as Ethio Telecom, Ethiopian Airlines, Ethiopian Railways and loans for mega projects like, major hydropower dams and the ten government planned sugar factories.

“The reports you hear as if Ethiopia is highly indebted is not true. In the international standard a debt of up to 50% of a country’s GDP is still OK. But we are far below from that,” Haji, said.

Meanwhile many scholars have been expressing concerns over the growing foreign debt of the country in the face of the country’s declining export income, which is dropping to around $2.5 billion in recent years from $3 billion with annual trade deficit of around $11 billion.

According to Dr. Alemayehu Geda an Ethiopian economics lecturer who presented a paper entitled ‘Foreign Direct Investment in Ethiopia and Credit Financing’ last year, China has loaned a total of $17 billion while the World Bank, Turkey, India and have landed $6 billion $3 billion and $1 billion respectively.

Mr. Haji on his part indicated that the country has been properly managing and using the loan and aid money for strategically important capital projects, which help the economy do well. He stated that last year Ethiopia has paid back close to 12 billion birr (close to $520 million) to both local and international lenders.

In addition to the concessional loans such as the one from the World Bank, which will be paid back up 38 years with small amount of interest rate, two years ago the Ethiopian government has also received 1 billion Euro commercial loans from Eurobonds, which will be paid back in ten years with one year grace period and around 6.25% interest rate.

Now as the government planned ten new sugar factories have failed to commence production due to poor management of the projects by the state agency METEC, the country is forced to stop getting commercial loans. “At least until our new industrial parks commence production and increase our export earnings, the country will not take money from external commercial lenders,” Haji said.