ETHIOPIA

The current governance structure of Ethiopia is stipulated in the Constitution which was adopted on 8 December 1994. It came into effect on 21 August 1995 following Proclamation No. 1/1995. The Constitution established two levels of governance, the federal and the state levels. The state level is commonly referred to as the regional level. Both the federal and state governments have legislative, executive and judicial powers. An interesting aspect of the Constitution is the power granted in Article 39 which provides that a state has an unconditional right to self-determination, including the right to secession.

At the national level, the Federal Democratic Republic of Ethiopia is established as a federal and democratic state with a parliamentarian form of government. There is a bicameral parliament consisting of the House of Peoples’ Representatives and the House of the Federation. The members of House of People’s Representative are elected for a term of five years on the basis of universal suffrage and by direct elections held by secret ballot. The members of the House of the Federation are elected by the state councils (state assemblies).

At the state level, legislative power is exercised by the state council (assembly), which is the decision-making organ. It exercises powers of legislation on matters falling under state jurisdiction as provided in Article 52 of the Constitution. Each state/region has a state constitution and the state assembly has power to draft, adopt and amend the state constitution. The state administration constitutes the highest organ of executive power. State judicial power is vested in its courts.

Decentralisation in Ethiopia has occurred in two distinct phases: the first started in 1992 and lasted until 2001. During this phase, powers, functions and resources were transferred from the centre to the regional governments. The state was reorganised into new administrative divisions consisting of 9 regional states, the federal capital city of Addis Ababa, and the special administrative region of Dire Dawa. This process opened the way for increased political development across Ethiopia. The second phase of decentralisation started in 2001. This period marked the beginning of a process of deepening decentralisation in Ethiopia by transferring powers, resources and functions beyond the regional states to the local governments (woreda/district).

The 1995 Constitution of Ethiopia is neutral on the subject of local government. However, Article 39 of the Constitution provides for the right to full self-government including the right to establish institutions of government in the territory. This provision has been used by the regional states to establish local governments. Each region has developed specific proclamations that specify the powers, duties and responsibilities of local governments.

TERRITORIAL ORGANISATION
Municipal Level [1]	INTERMEDIATE LEVEL	REGIONAL LEVEL	TOTAL NUMBER OF SNGs (2022)
832 districts (woreda) 180 cities	68 zones	11 regions / states 2 chartered administrative cities (Addis Ababa City Administration and Dire Dawa City Council)
Average municipal size: 114 630 inhabitants
1 012	68	13	1 093

[1] Name and number of sub-municipal entities:
Kebele (sub-districts): approx. 16 223

OVERALL DESCRIPTION: Ethiopia has a progressive governance system where the subnational governments are established in the Constitution and are allocated clear functions, executive and fiscal powers. The adopted system of devolution allows the highly diverse ethnic communities to participate in governance at the local level and exercise their right to self-determination.

REGIONAL LEVEL: There are 11 states/regions which are established on the basis of settlement patterns, language, identity and consent of the people concerned. Two of them were created in the last two years: the Sidama Region in June 2020 and the South West Ethiopia People’s Region in November 2021. In each regional state, there is a regional council that is the decision-making organ. The council members are directly elected and represent the various woredas.

In addition to the states/regions are two chartered cities, the federal capital city of Addis Ababa, and the special administrative region of Dire Dawa.

INTERMEDIATE LEVEL: Until 2001, Ethiopia was composed of four levels of government – federal, regional (state), woredas (district/municipal/city) and kebele (neighbourhood level). In 2001, a revision in the 1995 Constitution resulted in the recognition of an additional layer of local government, the zonal government. Zonal governments are intermediary between regional states and woredas. They operate as deconcentrated structures of the state/regional governments. In some regions (Amhara and Southern Nations, Nationalities and Peoples' Region (SNNP) state), zonal governments have an elected council and are more relevant than in other regional states. There are approximately 68 zones. The exact number is unclear as the names and number of zones is constantly changing.

MUNICIPAL LEVEL: The Constitution does not explicitly recognise local governments. It is however envisaged in Article 54 of the Constitution, which states that governments shall be established at state and administrative levels where necessary.

The power to establish and to determine the authority and functions of any local government is the responsibility of the state/regional governments. The state constitutions define the powers and functions of woreda (district) governments. Each woreda is composed of a unicameral deliberative body (the council) and an executive committee. The councils are made up of directly elected representatives from each kebele in the woredas.

In addition to woredas, there are city administrations, which are considered at the same level as the woredas. A city administration has a mayor who is elected by members of the city council. The council exercises oversight function over the woreda executive. It also approves the budget and social and economic plans of the locality. The number of cities often changes, but in 2022 there were 180 cities across all the 11 regions.

The lowest level of local government is the kebele. The kebele is at the neighbourhood level and is the primary contact for the majority of citizens living in Ethiopia. A kebele administrative unit consists of an elected council, a cabinet (executive committee), a social court and the development and security staff posted to each. Kebeles are accountable to their woreda councils and are typically responsible for providing basic services.

HORIZONTAL COOPERATION: There is no formal framework for cooperation between the states/regions.

The division of powers and functions between the federal and state governments is clearly elaborated in the Constitution in Articles 51 and 52 respectively. These articles allocate exclusive functions. The concurrent functions and those not expressly allocated to the federal government (residual functions) are assigned to the state government. The expenditure responsibilities assigned to the federal government include: foreign affairs, defence and national security services, ensuring macroeconomic stability, development activities of national characters. It should be noted, however, that the Constitution allocates to the federal government the function to formulate and implement the country's policies, strategies and plans in respect of overall economic, social and development matters. This is a broad function within which the federal government can undertake a very broad range of responsibilities that may overlap with those allocated to state governments.

With regard to public health, education, science and technology and the protection and preservation of cultural and historical legacies, the federal government is only responsible for establishing and implementing national standards and basic policy criteria. Housing and community amenities are exclusive responsibilities of state governments on the basis of being residual functions assigned to states by the Constitution. The states have powers to establish and administer a state police force, and to maintain public order and peace within the state.

Generally, allocation of responsibilities between states/regions and woredas is consistent across states, in terms of assigning health, education, water, agriculture, rural roads and some administrative roles to woredas.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Regional level	Municipal level
1. General public services (administration)	Administrative services (marriage, birth, etc.); Public buildings and facilities (town houses, etc.); Administration and operation of general services (non-assigned to specific functions); Basic research activities (non-assigned to specific areas)(Shared)	Administrative services (marriage, birth, etc.); Public buildings and facilities (town houses, etc.); Administration and operation of general services (non-assigned to specific functions); Basic research activities (non-assigned to specific areas) (Shared)
2. Public order and safety	Police; Firefighting; Civil protection & emergency services; Road traffic control and traffic signs and lights; Defence (military and civil) Civil protection; Emergency services(Shared)	Civil protection; Emergency services(Shared)
3. Economic affairs / transports	Road networks and facilities (highways, national, regional); Railway networks and facilities (national, regional, local); Airports (international, national, local); Ports (sea and fishing, inland waterways); Public transport (road, railways, tramway); Support to local enterprises and entrepreneurship; Agriculture, rural development, irrigation; Telecommunications and IT; Manufacturing and construction; Mining; Tourism; Commerce; Energy (electricity) (Shared)	Road networks and facilities (local); Agriculture; Rural development; Irrigation; Support to local enterprises and entrepreneurship; Energy (electricity); Transport facilities (bus terminals and market places); Slaughterhouses(Shared)
4. Environment protection	Parks and green areas; Nature preservation(Shared)	Waste management (collection, treatment and disposal of waste); Sewerage (waste water management); Street cleaning; Environmental protection; Air pollution; Soil and groundwater protection(Shared)
5. Housing and community amenities	Housing (subsidies); Housing (Construction/renovation); Housing (Management); Urban and land use planning(Shared)	Housing supply; Drinking water distribution; Urban and land use planning(Shared)
6. Health	Primary healthcare (medical centres); Hospital services (general and specialist); Preventative healthcare(Shared)	Primary healthcare (medical centres); Public health services (Shared)
7. Culture & Recreation	Sports and recreation; Libraries; Museums; Cultural heritage and monuments; Media and Broadcasting and publishing services; Religious affairs(Shared)	Cultural activities (language)(Shared)
8. Education	Pre-primary education; Primary education; Secondary education; Higher education; Vocational education and training; Special education; Research & Development(Shared)	Primary education; Secondary education(Shared)
9. Social Welfare	Social care for children and youth; Support services for families; Elderly; Disabled people; Social exclusion and poverty (benefits and policies); Social welfare centres; Housing subsidies and benefits; Unemployment subsidies and benefits(Shared)	Social welfare centres; Unemployment subsidies and benefits(Shared)

Scope of fiscal data: 5 regions/states (Amhara, Somalia, Oromia, SNNP and Tigray) and Addis Ababa City. They constitute approximately 92% of all regional expenditure and revenue and 96% of the population.

SNA 1993

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Medium

GENERAL INTRODUCTION: The main law governing the subnational fiscal framework is the Constitution which stipulates in articles 94 to 100 the financial expenditures, revenues and powers of taxation. Apart from own source revenues, the states/regions also receive intergovernmental fiscal transfers. The federal government has prioritised fiscal decentralisation and local governance which is reflected by the allocation of unearmarked general purpose grants to subnational regional governments which have been consistently increasing every year.

Woreda governments are not entrusted with taxation powers. They do not have the power to mobilise and raise revenue themselves. All taxation powers remain with the state/regional governments including property rates. Thus, woredas are largely dependent on the regional grant for discharging their responsibilities. The bulk of the grant that woredas receive from the regional governments is an unconditional block grant that the woredas can use for any purpose they deem necessary.

Subnational, state and local government expenditure by economic classification
2017/18	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure	169	169	-	7.8%	7.8%	-	57.1%	57.1%	-	100.0%	100.0%	-
Inc. current expenditure	131	131	-	6.1%	6.1%	-	58.3%	58.3%	-	77.5%	77.5%	-
Compensation of employees	83	83	-	3.8%	3.8%	-	228.5%	228.5 %	-	49.1%	49.1%	-
Intermediate consumption	27	27	-	1.3%	1.3%	-	67.4%	67.4%	-	16.3%	16.3%	-
Social expenditure	-	-	-	-	-	-	-	-	-	-	-	-
Subsidies and current transfers	18	18	-	0.9%	0.9%	-	13.1%	13.1%	-	10.9%	10.9%	-
Financial charges	-	-	-	-	-	-	-	-	-	-	-	-
Others	2	2	-	0.1%	0.1%	-	31.0%	31.0%	-	1.2%	1.2%	-
Incl. capital expenditure	38	38	-	1.8%	1.8%	-	53.4%	53.4%	-	22.5%	22.5%	-
Capital transfers	-	-	-	-	-	-	-	-	-	-	-	-
Direct investment (or GFCF)	38	38	-	1.8%	1.8%	-	53.4%	53.4%	-	22.5%	22.5%	-

EXPENDITURE: In 2017/18 financial year, current expenditure accounted for 77.5% of total expenditure. The largest item in the current expenditure was staff expenditure which accounted for 49.1% of total expenditure. Capital expenditure was 22.5% of total expenditure, thus leaving slightly less than a quarter of the expenditure for capital projects. Total subnational expenditure represented 7.8% of GDP.

Nationally, the share of expenditure at the woreda level remained stable over the period 2008/09 - 211/12, at about 25% of total regional expenditure. The relative share varies within regions. In Tigray region, 58% of spending is undertaken by woredas. In Harari region, woredas execute only 17% of total expenditure.

The states/regional governments and woredas employ more than three-quarters of civil servants. This is reflected in the wages and salaries which account for around 50% of states expenditure.

DIRECT INVESTMENT: Each regional government independently determines budget allocations for sectors within its region. In order to open up new sources of funding, particularly for infrastructure projects, in February 2018 the federal government published the public-private partnerships proclamation which established a legal framework for PPPs, primarily in reference to infrastructure projects.

Subnational, state and local government expenditure by functional classification
2017/2018	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure by economic function	140	140	-	6.5%	6.5%	-	-	-	-	100.0%	100.0%	-
1. General public services	19	19	-	0.9%	0.9%	-	97.5%	97.5%	-	13.5%	13.5%	-
2. Defence	-	-	-	-	-	-	-	-	-	-	-	-
3. Security and public order	13	13	-	0.6%	0.6%	-	62.7%	62.7%	-	9.6%	9.6%	-
4. Economic affairs/transports	29	29	-	1.3%	1.3%	-	53.6%	53.6%	-	20.7%	20.7%	-
5. Environmental protection	5	5	-	0.2%	0.2%	-	-	-	-	3.6%	3.6%	-
6. Housing and community amenities	12	12	-	0.6%	0.6%	-	-	-	-	8.7%	8.7%	-
7. Health	12	12	-	0.6%	0.6%	-	93.4%	93.4%	-	8.5%	8.5%	-
8. Recreation, culture and religion	7	7	-	0.3%	0.3%	-	-	-	-	4.6%	4.6%	-
9. Education	41	41	-	1.9%	1.9%	-	92.0%	92.0%	-	29.4%	29.4%	-
10. Social protection	2	2	-	0.1%	0.1%	-	-	-	-	1.4%	1.4%	-

In FY 2017-2018, two functions contributed over 50% of the total expenditure. Spending on education was at 29.4% and economic affairs was at 20.7% of total subnational expenditure. The other important expenditure sector was general public services at 13.5%. Total functional expenditure was 6.5% of GDP.

According to the analysis of the 2019/20 federal budget proclamation by UNICEF, the budget allocated for execution by the federal government continues to prioritise the social sectors with 21% allocated for education, 7.3 % for water resources and energy and 5.3% for health. It should however be noted that the majority of national social sector spending is executed at the subnational level by regional governments.

Subnational, state and local government revenue by category
FY 2017/2018	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total revenue	183	183	-	8.5%	8.5%	-	55.3%	55.3%	-	100.0%	100.0%	-
Tax revenue	58	58	-	2.7%	2.7%	-	22.3%	22.3%	-	31.8%	31.8%	-
Grants and subsidies	110	110	-	5.1%	5.1%	-	-	-	-	59.8%	59.8%	-
Tariffs and fees	15	15	-	0.7%	0.7%	-	-	-	-	8.4%	8.4%	-
Income from assets	-	-	-	-	-	-	-	-	-	-	-	-
Other revenues	-	-	-	-	-	-	-	-	-	-	-	-

OVERALL DESCRIPTION: The power to mobilise revenue (tax and non-tax) is shared between the federal and state governments through constitutionally allocated tax bases to the tiers of government. The Constitution preserved the most dominant sources of tax revenue for the federal government while state governments are allocated tax bases with a local nature (the federal government has an exclusive right to tax international trade and a major share in domestic indirect taxes). These two sources make up about 70% of the tax base.

The share of a state/regional government’s budget that is financed from own source revenue varies from about 17% to 40% depending on the region. There is a mismatch between expenditure needs and revenue collection at the subnational level, which is partially balanced by intergovernmental transfers in the form of block grants to regional and subnational governments. This process creates a significant dependence of subnational governments on federal grants to finance their expenditures.

TAX REVENUE: Subnational governments rely to a great extent on the grants and subsidies from the federal government. This source of revenue constitutes approximately 60% of total revenue. Tax revenue is the next major source of revenue constituting approximately 32% of total revenue. Other own source revenue is from tariffs and fees which contributes approximately 8% of revenue.

In Article 97, the Constitution assigns the following sources of revenue to regions: income taxes on employees of the state and of private enterprises; fees for land usufructuary rights; taxes on the incomes of private farmers and farmers incorporated in cooperative associations; profit and sales taxes on individual traders carrying out a business within their territory; taxes on income from transport services rendered on waters within their territory; taxes on income derived from private houses and other properties within the state; rent on houses and other properties they own; profit, sales, excise and personal income taxes on income of enterprises owned by the states; taxes on income derived from mining operations, and royalties and land rentals on such operations; fees and charges relating to licences issued and services rendered by state organs; royalty for use of forest resources.

As per Article 98 of the Constitution, states/regions and the federal government have concurrent power of taxation in the following cases, in which they jointly levy and collect taxes on: profit, sales, excise and personal income taxes on enterprises they jointly establish; profits of companies and on dividends due to shareholders; incomes derived from large-scale mining and all petroleum and gas operations, and royalties on such operations.

The House of the Federation determines the division of revenues derived from joint federal and state tax sources. Where a power of taxation has not been specifically provided for in the Constitution, the law requires the two houses of parliament sitting in a joint session, to determine the exercise of the power by a two-thirds majority vote.

All land in Ethiopia is under public ownership. Thus, it is only the usage right of the land that one acquires from public authorities. According to Article 5 of the Urban Land Rent and Urban Houses Tax Proclamation No. 80/1976, a legal possessor of urban land is required to pay annual land rent that is to be assessed on the basis of the size of the plot and location of the plot in the concerned city. Property tax is only payable on buildings. The percentage of the annual rental value of the concerned house is used as a basis for determination of the property tax.

GRANTS AND SUBSIDIES: Grants and subsidies contribute approximately 60% of total subnational government revenue.

Three types of grants are transferred to the second-tier subnational governments, excluding the city of Addis Ababa since it is self-sufficient in terms of revenue generation: (a) block grants from the federal government, (b) 50% share of business income tax and 30% of indirect taxes collected by the federal government on behalf of the regions, and (c) SDG capital grants.

The block grant allocation is based on a formula developed and approved by the House of Federation. The transfer system to the states/regions, uses a grant distribution formula based on the proportion of fiscal gap of the states in the total fiscal gap; the fiscal gap being estimated as the difference between revenue potential (not actual revenue) of the states and their respective expenditure needs. The House of the Federation further determines the subsidies that the federal government may provide to the states.

Between 2014/15 and 2019/20 the subsidies to states/regions have increased from ETB 51.5 billion to 140.8 billion, an increase of over 170%. In 2019/20 financial year, 36% of the federal budget was transferred as general purpose grants to subnational regional governments and 1.6% for capital projects towards achieving the Sustainable Development Goals (SDGs) at regional level. The higher share of the budget being allocated to regional governments reflects the government’s commitment to devolve decision making to lower tiers of government and making public services available to all citizens. There are great disparities between grants received by states. In 2019/20, Oromia State received ETB 47.6 billion (33%) or ETB 1 342 per inhabitant, while Harari State received ETB 1 billion (0.7%) or ETB 4 065 per inhabitant. The grants are based on the formula approved by the House of Federation.

ⓘ No detailed data available for this country

FISCAL RULES: The budget and financial management processes of regions are adopted from federal government systems. Regional governments prepare their own budgets. The budget is approved by the regional council without federal government interference. The Financial Administration Proclamation of the region stipulates that budget transfers from capital to recurrent budget are not allowed.

DEBT: The guiding instrument on debt management is Article 39 of Proclamation No. 156/2010 (as amended by Proclamation No. 209/2018) which grants the authority for the state/ regional government to borrow domestically. All borrowings must be approved by the federal government. In most cases, loans are on lent from the federal government.

TERRITORIAL MANAGEMENT OF THE CRISIS: To help contain the spread of the COVID-19, the government declared a state of emergency on 8 April 2020. The Ministry of Health and the Ethiopia Public Health Institute developed an Emergency Preparedness and Response Plan (EPRP) for the pandemic. A three-layered coordination structure was established to support the coordination of the COVID-19 readiness and response in Ethiopia: the strategic level coordination consisting of ministerial taskforces and chaired by the prime minister; the multisectoral level coordination led by the National Disaster and Risk Management Committee (NDRMC) and the tactical level led by Public Health Emergency Operations Centre (PHEOC). At the operational level, PHEOCs were activated in all regional states in the country. The National Emergency Coordination Centre was established and is supporting and coordinating with the Regional Emergency Coordination Centres which were established to respond to the COVID-19 pandemic. The laboratory diagnosis capacity has been expanded to other national institutions, subnational and private laboratories. The national and regional Public Health Emergency Operations Centres play a pivotal role in coordinating resources from different responding agencies and coordinating COVID-19 related information through regular EOC meetings and partners’ coordination forums.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: The Ethiopian central government has been constrained by dwindling revenues and the need to reallocate budget expenditures to contain the pandemic. It has implemented an economic-support package based on the principle of shared costs and sacrifices. This package includes: (i) prevention of layoffs during the crisis; (ii) government subsidies that enabled manufacturing exporters to benefit from zero-cost rail transport and lower export logistics costs; (iii) establishment of new industrial-parks that promote manufacturing hubs to produce personal protective equipment for domestic and overseas markets.

COVID-19 related spending under the EPRP amounted to about ETB 53 billion (~1.6% of GDP) or USD 1.6 billion (current) in FY 2019-2020 and ETB 30 billion or USD 0.8 billion (current) in FY 2020-2021.

In addition to the EPRP, the Council of Ministers approved measures to support firms and employment. These include forgiveness of all tax debt prior to 2014/2015, a tax amnesty on interest and penalties for tax debt pertaining to 2015/2016-2018/2019, and exemption from personal income tax withholding for 4 months for firms who keep paying employee salaries despite not being able to operate due to COVID-19.

The central bank has provided ETB 15 billion (0.45% of GDP) of additional liquidity to private banks to facilitate debt restructuring and prevent bankruptcies. It has also provided the Commercial Bank of Ethiopia (CBE) with an ETB 16 billion three-year liquidity line and has injected liquidity into hotel and tourism sectors through commercial banks.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: No information is available.

ECONOMIC AND SOCIAL STIMULUS PLANS: No information is available.