Ethiopia - Fiscal Federalism: Fiscal Policy Considerations for the Medium Term

Selected Issues Papers, July 30, 2025

Source details

Canonical URL: Ethiopia - Fiscal Federalism: Fiscal Policy Considerations for the Medium Term

Ethiopia’s interregional fiscal arrangements entail a sizable redistribution of resources.
These arrangements support income redistribution and equity objectives.
Transfers provide partial insurance against regional macroeconomic shocks.
Overall transfers from the federal government to regions have been constrained by limited fiscal space.
By law, regions cannot borrow without Ministry of Finance approval.

Limited fiscal space at the federal level constrains transfers to regions.
Legal restriction: regions cannot borrow without Ministry of Finance approval, limiting regional fiscal flexibility.
Curtailment of overseas development assistance would disproportionately affect regions with large humanitarian and disaster risk expenditure requirements.

Improve redistribution and stabilization features of Ethiopia’s government finances.
Strengthen regional budgetary frameworks to enhance fiscal discipline and capacity.
Mobilize domestic resources to support socio-economic development.
Implementation of revenue mobilization reforms will require support from the federal government to strengthen tax administration in the regions.

Subject: Expenditure, Fiscal federalism, Fiscal policy, Income and capital gains taxes, Revenue administration, Taxes, Value-added tax
Keywords: considerations for the Medium Term, disaster risk expenditure requirement, Ethiopia, Federal Grants, Fiscal Federalism, fiscal policy consideration, government finances, headquarters tax authorities, Income and capital gains taxes, Intergovernmental Relations, Sub-Saharan Africa, Value-added tax, Vertical and Horizontal Imbalances