Issues of Vertical Imbalance in Ethiopia's Emerging System of Fiscal Decentralization

"The major purpose of this paper is to examine the extent to which the problem of vertical imbalance arises in the Ethiopian context and to critically assess existing arrangements for resolving it. Since the country is just beginning to experiment with fiscal decentralization, and given its tradition of a highly centralized fiscal system, it would not be surprising that, at least in the initial stages, vertical imbalance would feature in regional budgets. In making progress towards greater decentralization, the country would be well-advised to consider its steps carefully in order to avoid the extremes of either too weak a central government or regions that are autonomous only in name. The exercise we are attempting here is rendered difficult by the novelty of the Ethiopian experience, which makes any empirical evaluation impossible. It is only for fiscal year 1993/94 that the budget has been presented separately for the center and the regions. Therefore, in this paper we will address the problem by confining ourselves to the relevant legislation and the 1993/94 budget (19936). Our intention is to identify problems that are likely to be particularly vexing and to draw attention to them before the new system of fiscal decentralization assumes final shape."