OVER VIEW OF PUBLIC FINANCE REFORMS IN ETHIOPIA

1. OVER VIEW OF PUBLIC FINANCE REFORMS IN ETHIOPIA (Presented for the Seminar on “Strengthening budget practices in Africa”, April 7-9,2009 Dakar, Senegal) Prepared by Demelash Megersa and Desu Gebre

2. Background of Expenditure Management & Control Reform (EMCP) in Ethiopia • One of the five sub-programmes of the Civil Service Reform Programme: • Top management • Human resource management • Service Delivery • Expenditure management & control • Ethics • EMCP VISION ‘create an efficient, effective, accountable and transparent financial management system that will contribute to the economic development effort of the Government’

3. There are 8 Projects under the EMCP • The Legal Framework • Government Procurement Reform Project • Budget Reform • Cash Management Reform • Accounts Reform Project • Internal Audit Reform • Government Property Management Reform • Integrated Financial Information Management system At present major reform activities of the above projects are implemented

4. Budget Reform Project Objectives • Reforming the chart of accounts and develop new single series of expenditure codes with the view to replacing the previous three series of codes • Introducing a financial calendar with detailed steps for the expenditure planning and the budgeting processes • Introducing cost center budgeting through the budget classification and integrate the preparation of recurrent and capital budget • Introduce a new system of budget classification that will map the budget to organizations more consistently and in detail

5. … cont’d Achievements • A new budget structure that has uniformity with the regions has been developed. • The budget reform has been implemented in federal, regional and sub-regional levels • Budget information system is up-grade to IBEX and installed in federal institution • Currently 20 ministries are selected to test the program budgeting system

6. Recent Budget Reform Measures • However, there is still shortcomings in the current budgeting: • The budget provides little information about what the budget is spent on • Recurrent budget is on the whole an incremental line item budget approach developed within a one year horizon • Hence for a new budgeting process: • The gov’t has opted to introduce program budgeting moving from line item budgeting to program based budgeting through which activities and their associated expenditure will be categorized according to the intended outputs.

7. … cont’d • Aim is to improve the allocation of resources to strategic priorities and strengthen expenditure management. • The budget must move from an input to an output focus. • Program budget requires. • The existence of strategic planning • Formulation of vision, mission and objective of each public body • Defining programs with objectives and outputs

8. Advantage of Program budgeting • Program budget tend to present more useful information on service delivery • Allows for transparency and accountability in service delivery • More useful for: • Determining whether allocations reflect priorities • Planning the delivery of services • Monitoring the use of resources with each program • Identifying areas where savings can be made or where more funds are needed.

9. Program budgeting … • At Federal Level • 20 ministries are selected to test the program budgeting system. • Training was given • To understand the features & characteristics of program budget. • To compare program budgeting with traditional line item budgets • To understand the advantage and disadvantage of program & line item budgeting

10. … cont’d Remaining tasks • Finalizing the program budget procedural manual and preparing of the training module, and training of staff will continue to implement the reform • Full implementation of program budgeting at federal level • Rollout to federal regions

11. Issue to be consider • There will be confusion during transition • Changes in responsibility for managers • It is cumbersome and time consuming • It is information intensive • It is costly • It has a large capacity requirement

12. Thanks for your attention