In its 40th regular session, Ethiopia’s Council of Ministers approved a supplementary budget of 581.98 billion birr to address additional fiscal needs and cost adjustments for the 2024/25 fiscal year. This decision, reached unanimously after detailed deliberation, has been referred to the House of Peoples’ Representatives for final approval. The supplementary budget aims to support critical sectors, adjust for rising costs, and align with the government’s macroeconomic reform goals.
Supplementary budgets are typically introduced to accommodate various economic needs. For instance, inflationary pressures, caused by rising costs, may require additional funding to maintain government programs and projects. They also address critical needs, such as emerging sectors or unforeseen challenges in areas like social welfare, health, and infrastructure.
This move comes after the Ethiopian cabinet’s earlier decision to increase the national budget by 25% for 2024/25, raising it to approximately one trillion birr—the largest in the country’s history. The original budget allocation prioritized federal operations, capital expenditure, regional support, and the implementation of sustainable development goals. However, the supplementary budget responds to emerging needs and provides flexibility to address unforeseen financial challenges.
Ethiopia has recently undertaken significant economic reforms, including the recent flotation of the birr, which led to a 106% devaluation.
However, “these fiscal measures come with potential challenges” most economists fear. Increased spending, particularly following currency devaluation, could exacerbate inflationary pressures, further eroding purchasing power. Additionally, financing such a large supplementary budget might increase reliance on borrowing, raising concerns about public debt sustainability.
