July 5, 2011 / 2:06 PM / 8 years ago

CORRECTED-Ethiopia 2011/12 budget boosts development spending

(Corrects dollar conversion in first paragraph)

* Lawmakers approve record budget

* Health, education, infrastructure spending soars

By Aaron Maasho

ADDIS ABABA, July 5 (Reuters) - Ethiopia on Tuesday approved a record 117.8 billion birr ($6.93 billion) budget that boosts spending on health, education and infrastructure in one of Africa’s poorest but most fast-growing economies.

The 2011/2012 budget surged from 77.2 billion birr in 2010/2011 and is almost double the amount endorsed by the country’s parliament two years ago.

The Horn of Africa nation says its economy has grown by an annual average of 11 percent over the past five years.

Prime Minister Meles Zenawi told legislators that 75.5 percent of the budget would be covered from local sources, with tax revenue generating more than 70 billion birr.

“It (budget) is well within our means, and not excessive considering the projects we are implementing,” he said.

Of the total, 48.7 billion birr will be used on development, including education, health and infrastructure. Investors, many from China and India, have been looking at Ethiopia’s agriculture, oil and gas exploration and hydropower sectors.

Opposition parties say the ruling party inflates the economic growth figures to attract investment and that the benefits have not filtered down to the poor in a country where 3.2 million need food aid this year, according to aid agencies.

While the government forecasts growth of 11.4 percent this year, the International Monetary Fund says it will be only about 7.5 percent, and slow to about 6 percent in the 2011/12 fiscal year, due to high inflation, restrictions on private bank lending and a trickier business environment.

Ethiopia’s year-on-year inflation rate surged for a second straight month to 29.5 percent in April, from 25 percent a month earlier. Meles has blamed global price pressures.

Of the total budget, 15.9 billion birr will be spent on education projects, up from 12.3 billion last year, and less than three billion on health projects.

Road building expenditure rises to 17.4 billion from 12 billion in 2010/11. Ethiopia has spent over $3.6 billion on road construction over the last decade.

Defence spending will also increase to 6.5 billion birr from 4.4 billion in a country with the biggest army in the Horn of Africa. Ethiopia is a key U.S ally in the region and entered neighbouring Somalia in 2006 to oust an Islamist group.

Addis Ababa signed a deal with Ukraine in June to purchase 200 tanks at a cost of $100 million. Meles justified the acquisition and cost, saying the tanks were a maximum 30 years old and would have cost more had they been the latest versions.

"We only have outdated tanks at our disposal -- they wouldn't be driven beyond 200 metres when used," he said. (For more Reuters Africa coverage and to have your say on the top issues, visit; af.reuters.com/) ($1=8.693 Birr)

$1=16.99 Ethiopian Birr

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