Addis Abeba, Oct 10, 2025 (Addis Standard/All Africa Global Media via COMTEX) --
In recent years, the Ethiopian government has introduced a series of fiscal measures designed to strengthen revenue collection from both tax and non-tax sources in order to finance its rapidly expanding annual budget, which currently stands at 1.93 trillion birr. For this fiscal year, the government expects to cover 57% of its expenditure by generating 1.1 trillion birr in tax revenue and an additional 270 billion birr from non-tax sources. To meet these targets, authorities have expanded the scope of taxation by imposing excise duties and Value Added Tax (VAT) on a wider range of goods and services, including electricity, water consumption, and animal feed, while also introducing new levies.
Petroleum products have been identified among the items subject to these taxes. Although the decision to apply both excise and VAT on fuel imported into the country was first announced three months ago, it gained renewed public attention last week following the release of the Ministry of Finance's "Citizen's Budget" document, which confirmed plans to fully implement a 15% excise tax in addition to a 15% VAT on fuel during the current fiscal year. The official budget document indicates the government's intention to generate an aggregate of 173.5 billion birr through indirect taxation in the current fiscal year. Specifically, the projections detail a planned collection of 92.8 billion birr from VAT, with the remaining 80.7 billion birr anticipated via the imposition of excise tax on petroleum products.
While such revenue-enhancing initiatives are part of a broader fiscal reform strategy--intended to strengthen the government's capacity to meet its expanding budgetary needs--reports reveal that they are placing an additional financial burden on low- and fixed-income households. Already contending with persistently high inflation and stagnant wages, these groups remain especially vulnerable to further increases in the cost of living.
Of particular concern is the combined effect of excise and VAT on petroleum products, which is expected to drive up the prices of already expensive fuels. Regular gasoline currently sells for 122.53 birr per liter, while diesel and kerosene each cost 116.49 birr per liter. Under the present circumstances, it is evident that the repercussions of any price increase will extend well beyond the fuel pump. Given fuel's pivotal role in Ethiopia's economy--as a key input in transportation, agriculture, manufacturing, and power generation--higher fuel costs are likely to ripple through the entire supply chain. Consumers will bear the burden directly through increased prices at the fuel station and indirectly through higher costs for goods and services, from food and household essentials to public transport and utilities. This dual pressure threatens to deepen the strain on household budgets already stretched thin by persistent inflation and stagnant incomes.
Despite this, the ongoing fiscal reforms underscore the government's determination to press ahead with new tax measures. The government's commitment to intensifying revenue collection was explicitly articulated by Finance Minister Ahmed Shide while defending the 2025/26 budget proposal during parliamentary debates in July 2025. He framed the fiscal reforms not as a matter of policy choice but of urgent necessity. With the government having halted borrowing from the central bank and significantly curtailed its access to low-interest domestic credit, Minister Ahmed stated that ramping up tax revenue has become "a matter of life and death."
Yet, even as officials reaffirm their commitment to extracting greater revenue from the public--effectively drawing funds from the pockets of millions of Ethiopians whose living standards are already declining rapidly--the government appears to give little priority to addressing systemic inefficiencies and wasteful spending within its own budget.
Currently, there is a conspicuous absence of urgency--or any tangible commitment--from authorities to tackle long-standing problems of ineffective expenditure and the misallocation of public funds. Repeated calls for greater fiscal discipline have not been matched by concrete actions to eliminate redundant programs, streamline operations, or enhance transparency in how public money is spent. This inaction fuels growing public concern that the weight of fiscal adjustment is being placed almost entirely on ordinary citizens, rather than being shared through meaningful reforms in public sector accountability and expenditure efficiency.
Even as officials reaffirm their commitment to extracting greater revenue from the public...the government appears to give little priority to addressing systemic inefficiencies and wasteful spending within its own budget."
The resulting imbalance--between demanding greater sacrifices from a struggling populace and failing to demonstrate equivalent rigor in managing public resources--has become a focal point of public discontent. Without a credible and parallel effort to root out mismanagement and improve the efficiency of government spending, the burden of fiscal consolidation will continue to fall disproportionately on households already grappling with soaring inflation and stagnant wages. Addressing this asymmetry is not only a matter of economic prudence but also of fundamental fairness and democratic accountability.
Fiscal disarray, budget mismanagement
To grasp the true scale of government expenditure inefficiency--and the persistent waste embedded within it--one need look no further than the government's own audit reports, which the Office of the Federal Auditor General presents annually to Parliament. In a damning report presented to lawmakers in late June 2025, Auditor General Meseret Damtie exposed that the federal government continues to grapple with deep-rooted fiscal mismanagement. Her assessment of spending during the 2023/24 fiscal year painted a sobering picture of chronic inefficiency, unresolved financial irregularities, and staggering sums of public money left idle or unrecovered. According to the report, federal agencies collectively failed to utilize 14.5 billion birr of their allocated budgets, a significant lapse in budget execution that underscores systemic planning and implementation failures.
The problem extended across multiple institutions, with the report identifying 32.9 billion birr in uncollected public revenues, with the Ministry of Health accounting for a substantial portion of this shortfall. Furthermore, the Ministry of Agriculture was found to have left an astonishing 7.8 billion birr in capital funds unspent. The Customs Commission also allowed 574 million birr to remain idle, while Arba Minch University presented a striking contradiction: it overspent its allocation by 210 million birr even as it left another 420 million birr unutilized. This paradox exemplifies the broader disarray in institutional financial planning, cash flow management, and spending discipline across the public sector.
The Auditor General's report for the previous fiscal year painted an equally troubling picture of financial mismanagement across the federal government. The audit uncovered widespread irregularities during the 2022/23 fiscal year, including substantial overdue government receivables, persistent tax revenue arrears, and unaccounted--and in some cases illegal--expenditures involving 162 federal agencies. Specifically, the report identified unaccounted expenditures amounting to 43.5 million birr across 11 federal institutions, among them the Federal Police Commission. In addition, it revealed illegal disbursements totaling 16.7 million birr carried out by 30 separate institutions.
Yet perhaps the most alarming finding was the sheer scale of overdue accounts receivable--amounting to 14.1 billion birr. This figure represents funds owed to the government that remain uncollected, often for extended periods, undermining both fiscal discipline and revenue performance. Notably, 124 government institutions were implicated in this failure to recover outstanding receivables, highlighting a systemic weakness in financial oversight and accountability mechanisms.
Those responsible for overseeing budgetary institutions frequently fail to attend parliamentary sessions where the Auditor General's reports are being presented."
Beyond the evident failure of government institutions to adhere to established regulations, what is even more alarming is the persistent absence of accountability among officials entrusted with upholding it. Those responsible for overseeing budgetary institutions frequently fail to attend parliamentary sessions where the Auditor General's reports are being presented--despite being duly notified in advance. Such absenteeism signals a deeper governance problem--one that erodes public trust and hampers the effectiveness of fiscal management. Strengthening accountability mechanisms and enforcing attendance at such sessions are therefore essential to ensure transparency and restore integrity in public financial governance.
Ballooning budget, mounting waste
Over the past five years, Ethiopia's annual budget nearly quadrupled, rising from 561 billion birr to 1.9 trillion birr. This substantial increase has been driven by the growing demands of recurrent expenditures--such as salaries, administrative costs, and debt servicing--as well as the need to finance critical capital projects in infrastructure, education, health, and other priority sectors. However, without meaningful reforms to address deep-rooted inefficiencies, redundancies, and waste in public expenditure, this ever-expanding budget risks becoming a vehicle for greater fiscal leakage rather than transformative development. Simply allocating more funds year after year will not yield better outcomes for citizens if the underlying systems for planning, procurement, monitoring, and accountability remain unchanged. In such a scenario, larger budgets may only amplify existing weaknesses, diverting scarce public resources away from the very people they are intended to serve.
Currently, Ethiopia contends with significant challenges in public financial management, characterized by pervasive inefficiencies, weak oversight, and budgetary waste that collectively erode fiscal sustainability and undermine crucial development outcomes. Contemporary studies and international assessments consistently pinpoint systemic issues spanning budget execution, public procurement, and essential accountability mechanisms.
According to the International Budget Partnership's Open Budget Survey, Ethiopia's performance on budget transparency is notably low, scoring only 38 out of 100, placing it well below the global average of 47. Furthermore, the nation scores 41 on public participation, indicating severely limited opportunities for civil society to meaningfully influence or monitor budget processes. This pervasive opacity is a significant factor contributing to resource misallocation and consequential waste.
In its economic update, the World Bank indicates that Ethiopia's actual budget execution rate frequently fails to meet allocated figures, resulting in underspending in critical social sectors such as health and education. Conversely, capital projects often suffer from significant cost overruns and protracted delays, consequences attributed to inadequate planning and substantial procurement bottlenecks. The International Budget Partnership further identifies "weak expenditure control and monitoring" as critical fiscal risks, citing instances of off-budget spending and deficient cash management practices that consequently distort accurate fiscal reporting.
Public procurement remains a central and persistent source of budgetary waste. Multiple comprehensive assessments have concluded that procurement is not only a dominant driver of public spending but also a major vulnerability for financial loss and systemic inefficiency. Studies indicate that public procurement represents a substantial share of government spending. Consequently, any weaknesses within the procurement system significantly amplify fiscal losses. Deficiencies in procurement design, a lack of transparency, and persistent capacity gaps consistently lead to inflated costs, project delays, and the delivery of substandard goods and services.
Procurement-related bottlenecks--including weak institutional capacity, delayed tendering processes, and difficulties in contract execution--are repeatedly highlighted by various studies as primary causes of time and cost overruns on critical infrastructure and service contracts. These delays and weak contract management practices inflate unit costs, frequently precipitate payment disputes, and, in some cases, result in projects that deliver less than their intended scope, all of which represent direct and avoidable budgetary waste. Therefore, strengthening procurement capacity and improving operational timelines is a high-impact reform area. Adding to this concern, a 2022 study by the Ethiopian Economics Association estimated that up to 20% of public procurement contracts in infrastructure projects involved inflated costs or substandard delivery, a finding largely attributable to limited competition and inadequate audit capacity.
Government spending inefficiencies and budget waste in Ethiopia are also evident across multiple dimensions, most notably in the disproportionately high share of the budget allocated to recurrent expenditures--particularly administrative and operational costs. A significant driver of this trend is the substantial amount of public funds allocated to non-essential or excessive official expenditures. These include the procurement of luxury vehicles for senior officials, unnecessary domestic transport, costly overseas travel for both official duties and medical treatment, and lavish spending on conferences, workshops, and meetings--many of which yield limited tangible returns.
Ethiopia's fiscal reform cannot succeed by relying predominantly on extracting more from taxpayers."
Although the government has repeatedly pledged to curb such expenditures and redirect resources toward more productive and developmental priorities, these costs have continued to rise. Rather than declining, they are increasingly consuming a larger slice of already constrained public finances, diverting funds that could otherwise support critical public services such as health, education, and infrastructure. This persistent pattern not only undermines fiscal sustainability but also erodes public trust in the government's commitment to prudent and accountable stewardship of national resources.
Ethiopia's fiscal reform at crossroads
Ethiopia's current fiscal trajectory reveals a deepening tension between the government's strong determination to expand revenue collection and its persistent failure to address systemic inefficiencies and waste within public spending. While the imperative to finance a rapidly increasing annual budget is undeniable, the chosen path places an undue burden on ordinary citizens. Authorities have moved decisively to widen the tax net--notably through the introduction of excise duties and VAT on essential goods and services. However, this resulting burden has fallen disproportionately on households already strained by high inflation, stagnant incomes, and escalating costs of living.
The public's willingness to accept these fiscal sacrifices is fundamentally undermined by the government's demonstrated inability to resolve profound and enduring inefficiencies within its own financial management. Damning reports from the Federal Auditor General, which routinely chronicle billions in unutilized budgets, uncollected revenues, and illicit expenditures, reveal a system plagued by fiscal indiscipline. This glaring asymmetry--demanding greater financial contributions from the populace while tolerating massive waste and mismanagement--erodes the social contract and severely undermines the moral foundation of the government's revenue-raising campaign.
Furthermore, assessments conducted by international financial organizations consistently indicate that Ethiopia lags significantly in key areas such as budget transparency, expenditure control, and public participation in fiscal processes. Weak procurement systems, recurrent cost overruns, and inflated contracts amplify budgetary waste and cause delays in critical development projects. This chronic lack of efficiency not only squanders scarce public resources but also severely impedes the country's capacity to achieve sustainable growth and equitable development outcomes.
To restore public confidence and enhance fiscal sustainability, it is imperative that the government complement its revenue-raising measures with robust expenditure-side reforms. Priority must be accorded to strengthening procurement capacity, tightening expenditure controls, and institutionalizing transparency and accountability throughout public financial management. Moreover, enhancing the capacity of oversight bodies and expanding audit follow-up mechanisms are crucial steps toward ensuring that resources are allocated effectively and that financial mismanagement is curtailed. Additionally, targeted reforms aimed at reducing recurrent and non-essential spending--such as excessive administrative costs and luxury expenditures--would not only alleviate fiscal pressures but also signal a stronger commitment to principles of equity and fairness.
Ultimately, Ethiopia's fiscal reform cannot succeed by relying predominantly on extracting more from taxpayers. The success of the government's fiscal reform agenda depends not only on effective revenue mobilization but, critically, on restoring trust between the state and its citizens. A government that demands greater sacrifices from its people must demonstrate an equal, if not greater, commitment to credible reforms designed to eliminate budget waste, enforce financial accountability, and channel resources into high-impact development priorities. Only by coupling aggressive revenue mobilization with genuine reform in expenditure management can Ethiopia lay the stable foundations for sustainable growth, social equity, and resilient public finances. AS
Editor's Note: Samson Hailu, the author of this commentary, holds a Master of Business Administration with a specialization in finance and a Bachelor of Arts in economics. He can be contacted at [email protected]
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