A Review of Fiscal Decentralization Practices in Ethiopia

Ethiopia attempted to introduce federalism in general, and fiscal decentralization in particular back as far as the transition period (1991-994). Later, a clearer federal system was established with the adoption of the 1995 Constitution of the Federal Democratic Republic of Ethiopia. The constitution shared political power between federal and regional governments. Accordingly, the federated units exercised this constitutional right. The main objective of this study was to assess the practices and problems of fiscal decentralization in Ethiopia. The study employed a review of relevant empirical studies, discussion with experts and the researcher’s own observation. In Ethiopia, the practices of fiscal decentralization show that there is high vertical fiscal imbalance and regional disparities, problem of effectiveness and efficiency in resource utilization, problems of administrative malpractice and tight political influence mainly at local levels, and problems of spillover effect. The current study suggests that: civil service institutions should be divorced from party politics to allow a build-up of professional, committed and honest civil servants to serve the interest of the general public; assigning appropriate revenue sources for regional units so that subnational units could provide adequate public service to the local people; promoting transparency, and encouraging wider participation of the general public and civil society institutions so that they can play constructive roles.