Ethnic Federalism in a Dominant Party State: The Ethiopian Experience 1991-2000 Lovise Aalen r 2002: 2

Region
1993/94 1994/95 1995/96 1996/97
1997/98
(budgeted)
Tigray
18.6
19.6
28.9
26.6
23.3
Afar
8.8
13.2
9.7
22.0
4.4
Amhara
18.8
17.4
18.6
19.1
18.8
Oromiya
29.2
27.4
29.7
30.1
25.6
Somali
60.1
42.5
24.6
23.0
12.8
Benishangul/Gumuz
6.6
7.2
5.9
6.8
4.5
SNNPRS
19.2
18.7
21.5
23.1
18.5
Gambella
8.8
10.8
5.8
8.7
4.8
Harari
33.7
15.7
18.8
19.6
8.9
Addis Ababa
63.8
67.6
75.8
99.7
76.4
Diredawa
89.8
68.8
50.9
53.4
33.6
Source: World Bank (2000:26)
Note: Regional imbalance is computed simply as a ratio of own revenues to the
total expenditures. Since none of the regions can run budgetary deficits, this
measure is comparable across regions.
Federal grants and subsidies
The vertical imbalance in Ethiopia is larger than in other federal systems in the
developing world, for example Malaysia and Mexico. According to the World
Bank’s comparative data, Ethiopia has a vertical imbalance coefficient on 0.52,
while Malaysia’s and Mexico’s coefficients are 0.37 and 0.36, respectively
(World Bank 2000: 25). The lack of regional funds and the reliance on
transfers from the centre reduce regional autonomy. Although federal grant
may be unconditional, the receivers will feel obliged not to implement policies
they know are against the will of the donor. But federal transfers are also
essential means to equalise the uneven economic development in the federation
and enhance the weaker regions’ capabilities. If subsidies are equitably
distributed, they could in the longer run reduce the asymmetry of the federal
units and empower the economically weaker states.
The stated aim with introducing federal subsidies in Ethiopia is equity and
efficient use of the existing scarce financial resources. Proclamation 33/92 (Art
7.2) describes the rationale behind the subsidies: inter alia to accelerate the
development of hitherto neglected and forgotten areas, to promote social
services and economic development and to narrow the per capita income gap
between regions. The nature and size of the subsidies is formulated and
implemented by the Ministry of Economic Development and Co-operation and
the Ministry of Finance, but finally determined by the House of the Federation.
This means that federal ministries deal with the daily administration of the
subsidies.

---

C M I
80
Table 6.7 Budget subsidies to the regional governments 1997/98