THE BUDGET PROCESS IN ETHIOPIA:

Budgeting from the initial stage of forecasting the annual revenues and expenditures, to the final stage of approv
al of the annual budget by the Council of Peoples Representatives, passes through a sequential and an iterative p
rocess. This budgeting process includes:
Preparation of the macro-economic and fiscal framework;
Revenue forecast and determination of expenditure budget ceiling:
allocation of expenditure budget between Federal and Regional governments;
allocation of Federal government expenditure budget between recurrent and capital budgets:
budget call and ceiling:
budget review by MoF and MoED;
Budget hearing and defense:
Review and recommendation:
Submission of the budget to the council of Ministers:
Submission of the budget to the Council of Peoples’ Representatives:
Notification and publication of the budget; and
Allotment.
The budget process thus includes al these stages, which obviously are sequential (one after the other) and iterati
ve. Peterson summarized the budget process into three phases: analyzing, fitting, and implementing. The analysi
s phase is the assembly and integration of financial data which might include processes from the formulation of
macro-economic and fiscal framework to the allocation of expenditure budget between Federal and Regional go
vernments the fitting phase is the process of prioritizing activities to fit with policy and reducing a budget to a ce
iling. Referring to the budgeting processes outlined above this might range from the processes of allocation of F
ederal government expenditures budget between recurrent and capital budget down to the submission of the bud
get to the council of peoples’ Representatives. The final paste, implementing, is distributing and using the alloca
tion, i.e. the notification and publication of the budget, allotment and the monitoring processes.

Budget being a one-year plan prepared for the coming fiscal year it requires a time schedule (deadlines) for each
and every processes hat should strictly be adhered to. The time schedule is usually handled through the budget c
alendar. In effect the budget calendar is the major instrument to manage the budgetary process. Thus far we don’
t have an authoritative and binding budget calendar that could force al public bodies involved in the process f bu
dgeting. The only dates proclaimed by law are the final approval and notification dates of the budget. Financial
proclamation 57/1996 states that “the budget appropriation shall be approved by the council of peoples; Represe
ntatives by sine 30th (July 6) and all public bodies shall be notified by Hamle 7 (July 13). “the other deadlines in
the process of budgeting will be set by the MoF and MEDaC who are responsible for the preparation of the recu
rrent and capital budgets, respectively. The MoF and MEDaC will notify the spending public bodies well ahead
of time about the important deadlines, the budget ceiling and other information through the budget circular. the
budgeting process usually took between six to eight months, and the MoF and MoED will release the budget cir
cular around November to December.

2.4.1. THE BUDGETARY PROCESS AT THE FEDERAL LEVEL:

The budget processes at the Federal level follows sequential and iterative the steps. These steps can be explained
with the help of the following Chart. Let us briefly explain these steps one by one here under:

Step one - Macro-Economic and Fiscal Framework:

The preparation of the macro-economic and fiscal framework is basically a component of the recently initiated p
ublic investment program (PIP). It is a planning practice and as stated in Ministry of Economic Development, th
e macro-economic and fiscal framework determines the overall level of government expenditures based on polic
ies related to the role of government in the economy, government deficits, and priorities for resource allocation
between regions and sectors. For the Federal government the framework is a three years forecast and will be upd
ated each year.

The framework is composed of macro-economic forecast and fiscal forecast. The macro-economic forecast give
s the forecast of Gross Domestic product based on past performance and estimates for future years, and provides
base line information in preparing the fiscal forecast. Financial Regulation 17/1997 gave the responsibility of pr
eparing this framework to the Ministry of Economic development (MoED). Where as, the later, establish the lev
el of total resources available for expenditure. it provides a more detailed forecast of revenue (both Federal and
Regional), end projection of expenditure. Given the policy of no borrowing from domestic banks to finance bud
get deficit the level of expenditure mainly depend on the amount of resources to be raised in the form of domesti
c revenues and external fund that include counterpart funds. Once prepared by the concerned coordinating minis
tries, i.e. MoF and MoED, it will be reviewed and approved by the Prime Minister’s Office (PMO).

Step Two- Determination of Federal Government Expenditure and Subsidy to

Regional Governments:
After the revenue and expenditure of the government are estimated through the fiscal framework, the PMO will
decide on the shares of Federal government expenditures and subsidies Regional governments. it is known that,
following the decentralization policy, Regional governments took grants from the Federal government in the for
m of subsidy.
Once the amount of subsidy is known, the allocation among regions is determined on the basis of a formula. Init
ially the formula was composed of five parameters (population, level of development, revenue generating capaci
ty, utilization capacity, and land area). At present, how ever, the formula takes account of three parameters: pop
ulation, the level of development, and revenue generating capacity of each region which are given a relative wei
ght of 60%, 25% and 15% respectively. This allocation will fist be prepared by MoED, then reviewed by the P
MO and finally approved by the Council of peoples’ Representatives.
Step three: Allocation of Federal Expenditure between Recurrent and
Capital Budget
The practice in the allocation of recurrent and capital budget is to consider the latter as a residual. That is, first th
e amount of budget necessary to cover such recurrent expenditures like pensions, debt servicing, wages and non-
wage operating costs will be determined. The balance will then be allotted to capital expenditures. This will be p
erformed by the PMO in consultation with MoF and MoED.
Step Four - Budget Call and Ceiling Notification:
This includes two items. They are:
a). Recurrent budget: MoF will release the budget ceiling to the line ministries in a budget call. The budget call
provides each ministry such information as the macro-economic environment, an aggregate recurrent budget ceil
ing, and priorities to budget.

b). Capital Budget: MoED issues detailed capital budget preparation guidelines to spending public bodies along
with the ceilings provided to each line institution. MoED will set the ceiling for each sector.

Step Five - Budget Review by MoF and MoED:

This includes two items. They are:
 1. Recurrent Budget:
Prior to a formal budget hearing, spending public bodies will submit their budget proposals to the MoF-Budget
Department. In consultation with spending public bodies, MoF will prepare an issue paper on Major issues at ea
ch head level in the proposed budget. Here, spending public bodies can submit above the ceiling but need to hav
e a compelling justification
2. Capital Budget:
The sector departments of MoED review the capital budget requests from different public bodies. At this stage p
rojects will be screened. If there exist a discrepancy between the respective sector department and the public bod
y, a series of discussions will be held to reach agreement. After such a process the various sector departments of
MoED will submit their first round recommendation to the Development Finance and Budget Department of Mo
ED. Then it will be consolidated and prepared for the capital budget hearing and defense.

Step Six - Budget Hearing and Defense:

This includes two items. They are:

Recurrent Budget:

Spending public bodies defend their budget submission in a formal hearing with the MoF. The issue paper will b
e the basis of the hearing. The hearing focuses on policies, programs and cost issues, when necessary it might in
volve discussion down to line item. Spending public bodies could also challenge the ceiling. Presenting the heari
ng will be ministers and/or vice ministers, heads of public bodies and the MoF.

2. Capital Budget:

Spending public bodies will be called to defend their projects to a budget hearing convened by the PMO which
will be chaired by the prime Minister or the deputy Prime Minister or the their economic advisers. The hearing c
ustomarily includes a review of status of the project, implementation capacity of the institution, compatibility wi
th the countries development strategy and policy, cost structure, and regional distribution. A project description
will be presented which includes objectives of the project, main activities of the project, status of the project, tot
al cost, past performance of the project, source of finance, and whether the project is accepted or rejected by Mo
ED. On the basis of the discussion the respective sector departments of MoED in consultations with the spendin
g public body will further refine the capital projects.

Step Seven - Review and recommendation:

This includes two items. They are:

Recurrent budget:

After the hearing is over, the budget committee of the MoF will review the discussion and make a recommendati
on. If there is an increase (over ceiling) this will go to the PMO for approval.

Capital budget:

After the hearing and defense with the PMO and MoED, sector departments of MoED will give a final recomme
ndation to the development finance and budget department of MoED. This will then be compiled and put in appr
opriate formats for submission to the council of ministers.

Step Eight: Submission to the council of Ministers:

At this stage the two budgets (recurrent and capital) will be consolidated, and MoF will prepare a brief analysis
of the total budget.

Recurrent budget:

The recommended budget will be submitted to the deputy Prime Minister for economic affairs. This will first be
reviewed by ministers and vise ministers in economic affairs, and then presented to the Prime Minister along wit
h a brief. The Prime Minister may or may not make amendments and then the budget will be sent to the council
of Ministers for discussion.

2. Capital Budget:

A brief analysis of the capital budget will be prepared by MoED on the final recommended budget and, along wi
th the consolidated capital budget, will be submitted to the council of ministers. MoED will defend the budget in
the council. The council of ministers may make some adjustment and the draft capital budget will pass the first
stage of approval.

Step Nine - Submission to the Council of Peoples’ Representatives:

Once approved by the council of ministers, the Prime Minister will present both the recurrent and capital budget
to the council of peoples’ representatives. The budget will then be debated based on the recommendation of the
budget of the committee.

Step Ten - Notification and Publication:

The approved budget will then get the legal status through the publication in the ‘Negaret gazeta.’ Spending pub
lic bodies will then formally be notified of their approved budget by line items from MoF and MoED for recurre
nt and capital budgets, respectively. MoF will notify spending public bodies through Form 3/1. Likewise, MoE
D will inform through Form 3/2. Both Forms will be copied to the Treasury Department of the MoF which disbu
rse funds to spending public bodies. Until Form 3/1 is released spending public bodies are authorized to spend o
ne-twelfth of the previous year’s budget with no provision for new expenditures (e.g. new staff posts) in the case
of recurrent budget. For capital budget spending public bodies are authorized to use approved budget for on goi
ng projects even when Form 3/2 is not released.

The final stage of the budgetary process is to request spending public bodies to prepare adjusted work plan and c
ash flow for the approved budget. The adjusted work plan and cash flow will be verified by MoF-for the recurre
nt budget-and by MoED-for the capital budget, and then will be sent to the treasury Department of the MoF.

Step Eleven - Supplementary Budget:

In the course of the budget year supplementary (additional) budget will be proclaimed when necessary, followin
g almost the same process as the initial budget preparation. Likewise budget reallocation will be made mainly ba
sed on performance.

Meker tesemy'alesh betam

Me:- be Hej betsefy teru new Value yesetoal.
You:- Ishiiiii
Moodish temechegn