Ethiopia 2019

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Aggregate expenditure outturn was between 95% and 105% in at least two of the last three years (105.7% in 2015/2016, 101% in 2016/2017, and 98.9% in 2017/2018).

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Expenditure composition variance by function for all of the last three was more than 15% (25.9% in 2015/2016, 25.1% in 2016/2017, and 23.3% in 2017/2018).

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Expenditure composition variance by economic type for all of the last three was less than 15% in two of the last three years (12.2% in 2015/2016, 18.6% in 2016/2017 and 7.2% in 2017/2018).

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Average expenditure charged to contingency reserves for the last three years averaged 0.04% of the total expenditure.

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Actual total revenue outturn for at least two of the last three years falls in the range of 92% to 116% (102.9% in 2015/2016, 93.7% in 2016/2017, and 93.8 in 2017/2018).

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Revenue composition variance for all the three years was more than 15% (21.1% in 2015/2016, 23.2% in 2016/2017, and 21.4% in 2017/2018).

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Budget formulation, execution, and reporting are based on administrative, economic, and functional classification using GFS/COFOG standards or a classification that can produce information that is consistent with those standards.

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Budget Document fulfils at least three basic elements.

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Expenditure outside Government Reports is less than 5% of total BCG expenditure.

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Revenue outside Government Reports is less than 10% of total BCG revenue

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Detailed financial reports of most EBUs are submitted to the government annually within six months of the end of the fiscal year.

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The system for allocating horizontal transfers to regional governments is rule based and transparent. However, regional priorities may differ from federal government priorities, leading to poor resource allocation and inefficient service delivery.

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Regional governments receive reliable information on transfers more than two months before the beginning of the new fiscal year; this allows for sufficient time to prepare their annual budgets. The federal government budget timetable provides indicative ceilings by February.

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Each year, the federal government publishes information on its policy objectives, performance indicators, outputs, and outcomes to be achieved in the next fiscal year. This information is disaggregated by program.

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The MoF consolidates program budget results into a report; this was the case in FY2017/2018. The report contains information on outputs and outcomes from all sectors, again disaggregated by program. However, this is not published. While the education sector (14% by value of federal government budget) publishes annual statistical abstract, the health sector does not.

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Information on resources to the regional and woreda levels, where the service delivery units operate, is collected and recorded by the MoH and the MoE, disaggregated by source of funds. A report compiling the information is prepared at least annually.

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The MoF conducts an annual evaluation of all sectors to assess the efficiency and effectiveness of government policy; the report is however not published. That said, there is also an annual joint evaluation (known as the JRIS) of the pro-poor sectors (education, health, water and sanitation, and agriculture—all together covering 100% of pro-poor and service delivery expenditure). The JRIS reports are published. The World Bank also published two PERs conducted in 2016 and 2017.

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The government makes available to the public two basic elements and one additional element.

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Monitoring of public corporations is weak; 99.6% (by value) of public corporations submit their annual financial statements to both the government and OFAG between two to five years after the end of the financial year. Only 0.4% (by value) submit their reports within six months after the end of the financial year.

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Regional governments submit annual financial statements to government; these reports are not published. There are significant delays of more than one year in publishing audited reports of regional governments.

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The federal government does not prepare or publish a fiscal risk report. Also, it does not prepare and monitor both explicit and implicit contingent liabilities.

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There is no independent economic analysis of all major capital investment projects. However, a few projects initiated by budget units undergo simple economic analysis.

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Most capital investment projects are selected based on government priorities; selection is done at the level of the Council of Ministers.

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Project costing is weak; only total capital investment cost if provided. There is no forward-linked recurrent expenditure framework.

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At present, implementing budget units monitor projects through physical inspection and quarterly and annual financial progress reports. The M&E Directorate of the PDC does not effectively monitor and evaluate government investment projects.

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The federal government maintains records of its cash and bank balances; there are no records of other financial assets such as government equity shares in both public and private enterprises.

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The federal government does not maintain a comprehensive and consolidated register of its fixed assets. Presently, management of fixed assets is decentralised at the budget unit level. The asset registers maintained by these budget units do not provide information on the age and usage of assets.

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Article 67 of the Federal Government Procurement and Property Administration Proclamation No. 649/2009, dated September 9, 2009, and Directive No. 9/2010 outline the legal and regulatory framework for disposal of fixed assets; there are no clear legal provisions for the disposal of financial assets. Proceeds from the sale of fixed assets and financial assets are disclosed in the financial reports; there is no disclosure of the new owner(s).

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The Debt Management Directorate of the MoF uses Version 6 of DMFAS to record and manage public debt (both domestic and foreign) and guarantees. Debt reports are generated at least quarterly. At least 75% of debts are reconciled quarterly.

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Article 40 (2) of the 2017 Financial Administration Proclamation No. 648/2009[1] mandates the Minister of Finance as the sole government official authorized to contract loans and issue guarantees on behalf of the Government of Ethiopia. The HoPR approves all loans and guarantees.

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A current MTDS covering 2016–2020 has been prepared and published on the MoF website (mofed.gov.et). The strategy shows government refinancing plan foreign currency and interest rate risks. Government borrowing plan is consistent with the MTDS.

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The government prepares forecasts of key macroeconomic indicators, which, with the underlying assumptions, are included in the budget documentation submitted to the legislature. These forecasts are updated at least once a year. The forecasts cover the budget year and the two following fiscal years. The projections are not reviewed by a technical entity other than the preparing entity.

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The Fiscal Policy Directorate prepares, through the MEFF, forecasts of the main fiscal indicators, including revenue by type, aggregate expenditure, and the budget balance for the budget year and two following fiscal years. These forecasts, together with the underlying assumptions and the explanations of the main differences from the forecast made in the previous year’s budget, are included in the budget documentation submitted to Parliament.

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The macro-fiscal forecasts prepared by the government include a qualitative assessment of the impact of alternative macroeconomic assumptions.

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The government does not prepare estimates of the fiscal impact of all proposed changes in revenue and expenditure policy for the budget year.

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The government does not prepare a current fiscal strategy that includes qualitative objectives for fiscal policy.

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The government does not prepare an internal report on the progress made against its fiscal strategy.

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The annual budget document presents estimates of expenditure by administrative function or program and economic type but for the budget year only.

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Aggregate and ministry-level expenditure ceilings for the budget are approved by the Council of Ministers after the BCC is issued to budgetary units.

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Only the MoE provided the sector strategy to the assessment team.

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The budget documents provide an explanation of 77% (that is, most) of the changes to expenditure estimates between the second year of the last medium-term budget and the present year of the current budget at the ministry level.

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A clear annual budget calendar exists, is generally adhered to, and allows budgetary units six weeks from receipt of the circular to meaningfully complete their estimates on time.

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A comprehensive budget circular is issued to budgetary units, which covers total budgetary expenditure for the full fiscal year. The budget reflects ministry ceilings submitted to the Council of Ministers. The Council’s approval took place after the distribution of the BCC to budgetary units but before budgetary units had completed their submissions.

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The executive has submitted the annual budget proposal to the legislature at least one month before the start of the fiscal year in all three years.

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The legislature’s review covers fiscal policies and aggregates for the coming year, as well as the details of expenditure and revenue

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The legislature’s procedures to review budget proposals are approved by the legislature in advance of budget hearings and are adhered to. The procedures include arrangements for public consultation. The procedures include internal organizational arrangements, such as specialized review committees, technical support, and negotiation procedures.

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The legislature has approved the annual budget before the start of the fiscal year in each of the last three years.

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Clear rules exist for in-year budget amendments by the executive and are adhered to in most instances. Extensive administrative allocations are permitted.

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The ERCA uses multiple channels to provide payers with easy access to comprehensive and up-to-date information on the main revenue obligation areas and on rights including, as a minimum, redress processes and procedures.

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The ERCA uses partly structured and systematic approach for assessing and prioritizing compliance risks.

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Aggregate tax audit completed exceeded target by 18.82%.

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Complete information on tax arrears for FY2017/2018 is not available.

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The ERCA, which collects 81% of the federal government's domestic revenue, reports collections to the MoF on a monthly basis. The report classifies the taxes according to type.

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Domestic tax revenue collections are transferred to the Treasury within 3 days; nontax revenues are deposited within 24 hours.

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The monthly reconciliation does not include assessments and arrears; reconciliation only covers collections and transfers to the Treasury.

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As shown in Table 3.19, at least 76% of government cash and bank balances are consolidated monthly.

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Each year within the review period, BIs prepare and submit annual cash flow plans to the MoF, which are consolidated. The annual cash flow forecasts are updated quarterly based on actual inflow and outflow of cash.

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The MoF provider’s quarterly ceilings for public bodies and public bodies are able to plan commitments for at least a quarter.

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Significant in-year adjustments to budget allocations take place frequently but they are done in a transparent way.

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The stock of expenditure arrears for at least two of the three years was 0.34% and 0.8%, which is less than 2%.

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Data on the stock and composition of expenditure arrears are generated annually at the end of each fiscal period.

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There is a direct link between personnel and payroll records for 44 BIs, through IFMIS. The 145 other government institutions use IBEX and have no direct link between personnel and payroll records. That said, all changes are fully supported by documentation as approved by authorized central government institution officials. Also, all hiring and promotion is done in accordance with approved staff posts.

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Personnel records and payroll are updated at least monthly in a timely manner before the next month’s payroll, and retroactive adjustments are rare. While consolidated data on retroactive adjustments are not available, sampled evidence from the MoH and MoE show retroactive adjustments of less than 0.7%.

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Authority and basis for changes to personnel records and the payroll are clear and adequate; these ensure data integrity. Whereas 44 BIs have stronger payroll controls due to IFMIS, resulting in electronic audit trail, other 145 institutions on IBEX may have weaker controls due to manual interface even though it results in manual audit trail.

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Partial payroll audits have been conducted by OFAG, internal audit units across central government institutions, and the Inspection Directorate of the MoF. This is done each year as part of the routine financial and compliance audits. A comprehensive payroll audit has not been conducted for all central government entities within the last three completed fiscal years.

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Most of the BIs do not maintain databases or records for contracts including data on what has been procured, the value of procurement, and who has been awarded contracts. They prepare the performance report directly from the source document at the end.

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Available evidence from the FPPA suggests that 92.19% (by value) of contracts are awarded through open competitive method.

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Only two of the key procurement criteria have been met.

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Four of the six basic elements for procurement compliant management have been met but criterion (1) is not met.

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The various financial management manuals indicate the segregation of duties between the various process in resource management including cash, supplies, fixed assets, payroll, procurement, and other related PFM functions.

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Budgetary controls are generally effective and expenditures commitments generally are to the extent of projected cash availability. There are certain instances where BIs may not be able to pay committed expenditures to contractors due to unavailability of cash.

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Most of the payments are compliant with payment procedures. Most of the exceptions, though they are subject to noncompliance audit findings of internal auditors and OFAG, are authorized by the respective heads of BIs. Irregularities represent about 2% of the total expenditure.

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Central government units including EBUs representing about 97% of the central government expenditure and close to 100% of central government revenue have internal audit units.

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Internal audit is mainly focused on compliance audit rather than systemic audit. All visited government institutions have submitted annual audit plans to the heads of their respective BIs and copies were shared with the Inspection Directorate of the MoF.

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Visited entities implemented between 75% and 100% of their plan. As evidenced by submitted audit reports from 85.7% of the entities, it can be deduced that majority of the programmed audits were implemented.

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Audited public bodies representing about 26% of the total central government expenditure responded on time.

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Treasury bank reconciliation is done on a monthly basis within four weeks by the Accounts Department at the MoF and likewise for budget units and extra-budgetary entities.

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There are no suspense accounts.

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In most cases, advance accounts reconciliations at the MoF are done on annual basis within two months of the end of the fiscal year while preparing the annual financial statements. Huge outstanding balances remain uncleared; in 2017/2018 they amounted to ETB 70.9 billion.

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In the case of IFMIS, the accounting software prompts for change of password periodically. However, IBEX (used by two-thirds of budget units) does not prompt for password change. However, audit trail exists in both systems.

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Reports received from the sectors compare budget versus actual; however, there is no consolidated report prepared at central government level which compares budget versus actual.

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No consolidated budget execution reports are prepared at the federal level.

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No consolidated budget execution reports are prepared at the federal level.

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The annual financial statements for the federal government for the last completed fiscal year 2016/2017 include information on budget, revenue, expenditure, cash balances, financial assets, and financial liabilities, including medium- and long-term obligations, and are supported by a reconciled cash flow statement.

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The EFY 2009 financial statement was submitted to the auditors within six months after the end of the fiscal year.

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No specific internationally accepted accounting standard is applied in the preparation of the public accounts of the federal government.

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The financial audit covers 100% of federal government BIs. EBUs also have been audited during the last three fiscal years. The audit is conducted in accordance with ISSAI standards, and significant findings are highlighted.

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OFAG submitted consolidated audited annual financial statements of the Federal Government of Ethiopia within five months from the receipt of the reports from the MoF.

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Management response to audit findings is included in the audit report. The audited entity submits a comprehensive management letter, including evidence of action, as applicable

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The SAI is independent in practice. The AG’s budget is determined by the MoF within a financial ceiling in the same way as other BIs. OFAG does not have a systematic audit recommendation follow-up system.

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PAC scrutinizes the audit report within 4 to 20 days of the receipt of the audit report from OFAG within the last three completed fiscal years.

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In-depth hearing is conducted on audit reports of a few of the audited entities.

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As part of its follow-up mechanism, the PAC demands all central government audited entities with adverse audit findings to submit action plans with timelines on how these entities intend to address the audit findings from OFAG as well as recommendations issued by the PAC. It also receives at least biannual updates on progress made in terms of implementation of its recommendations.

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The hearing is recorded and broadcasted by the national television except sensitive and high-level security issues that are held in camera. The PAC reports are tabled in the full chamber for debate and consideration. Brief summaries of the hearings are posted on the Facebook account of the HoPR. The full committee’s report, though not published on the website, is obtainable at the Parliament’s library.