(Bloomberg) -- Ethiopia is more than doubling its revenue target amid an International Monetary Fund financing program that sets out several conditions to reform East Africa’s biggest economy.
The country seeks to collect 1.5 trillion birr ($12.5 billion) in the fiscal year to July 7, Prime Minister Abiy Ahmed told lawmakers on Thursday. That compares to 613 billion birr the finance ministry set in its 2024-25 budget presented in June.
To net more revenue, Ethiopia is introducing new taxes including value-added tax on banking services, property taxes and an excise tax on telecommunication services. In the first quarter of the fiscal year that started in July, authorities collected 65% more than a year earlier, but the 180 billion birr is woefully low given the latest target.
Africa’s second-most populous nation signed up for a $3.4 billion IMF bailout in July after defaulting on a eurobond that’s maturing in December. In exchange, it’s had to allow its currency to float freely. Other reforms it’s been implementing include opening up its financial sector to foreign investment and plans to privatize state-owned enterprises, including a giant telecommunications operator.
“Ethiopia is one of the countries with a low tax-collection rate, largely because many sectors operate informally. We want to change this,” Abiy said in the capital, Addis Ababa. “We are working on reforming tax laws, improving tax administration, automating processes and changing the attitudes of tax workers.”
Sign up here for the twice-weekly Next Africa newsletter
Ethiopia plans to collect 900 billion birr from federal sources and 600 billion birr from regional governments. To achieve this, Abiy said he’s establishing a high-level committee to focus solely on overseeing revenue collection.
The traditional IMF economic orthodoxy of boosting revenue, cutting spending and privatizing state companies has backfired elsewhere in the region. Neighboring Kenya fell into trouble earlier this year as citizens took to the streets in protests over multiple fresh taxation measures introduced in the two years since President William Ruto came to power. It’s had to abandon some of the proposed taxes and collection is lagging behind.
Since agreeing to the reform package, the Ethiopian central bank’s foreign-exchange reserves have jumped 161%. Aid and grant inflows ballooned to $3.4 billion in the first quarter, compared with just $400 million a year earlier, Abiy said.
You can follow Bloomberg’s reporting on Africa on WhatsApp. Sign up here
©2024 Bloomberg L.P.