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Feasibility of Aligning Ethiopian Fiscal Year with Calendar Year

Ethiopian Fiscal Year
Source: Interact news center

By Belayneh Begajo

Ethiopia is the oldest and one of the few countries in the world that were not colonized by any foreign powers. Ethiopia, being not colonized, had endured its rich cultures, traditions, practices and beliefs for generations. The Ethiopian Calendar (EC) is one of a major historical fact that lived as uniquely as it is for years. The EC has 13 months; 12 months each with 30 days and the last 13th month with 5 days for four years and 6 days in the leap year. EC is a symbol of freedom, a sign of independence and uniquely identifies the country and its people. In some way, it also signals the defiance and ingenuity of the Ethiopian people in the facade of colonial aggression that distorted the thoughts and practices of many African countries. Partly it also indicates the unbroken long culture of Ethiopian political and economic governance systems. 

The timing of the fiscal year is most often not questioned and not even discussed in the policy circle as in most cases it comes down from history, tradition and sometimes determined by religion or common sense. Today, more than 168 countries in the world use the Gregorian calendar (GC) and 156 of them have aligned their fiscal year with the GC calendar (1 Jan to 31 Dec). Countries that have colonial history are influenced by their colonial pasts and use the same fiscal calendar instituted in their colonial times. Few countries though have changed their fiscal year in the last decades for economic and management reasons including the USA Federal government. Countries that changed their fiscal year includes USA federal government that changed its FY in 1976 from 1 July-30 June to 1 October-30 September; New Zealand changed its FY in 1989 from 1 April-31 March to 1 July-30 June; Timor-Leste changed its FY in 2009 from 1 July-30 June to 1 Jan-31 Dec; Fiji changed its FY in 2016 from 1 Jan-Dec 31 to 1August-31July and India changed its 150 year old British rooted fiscal year in 2018 from 1April- 31 March to 1 Jan-31 Dec.     

 Fiscal year is one of the important parts of the calendar in time management as there are other calendars like school calendar, tax calendar, legislative calendar etc. The timing of fiscal year is a budget calendar where public budgets are allocated in a year’s time frame. The budget year of a country needs to be the one that will enable the smooth flow of public expenditures in a way that ensures efficiency and effectiveness of its utilizations. The timing where the public budget is attached to has strong bearing in the economy in terms of its efficiency and effectiveness. Moreover, the budget year needs to be in harmony with various economic, social, and political interests of the public, and need to consider the ecological and other country realities on the ground.  

The Ethiopian fiscal year that begins from 1July-30 June comes three months early from the New Year. The New Year begins on 1 September-5th/6th of Pagume. The early coming of fiscal year and its nonalignment with the calendar year has in many ways created a sense of inconvenience and inefficiency in public budget management. For example, the quarterly public expenditure record has always been at its lowest in the first quarter and the highest in the last quarter which indicates the lack of smooth flow of public expenditures over the year and unbalanced circulation of money in the economy on a quarterly basis. The unbalanced quarterly money flow into the economy will likely distort some economic variables. For example, the trend of highest expenditure in the 4th quarter suggests that it will contribute to increased inflationary pressure that we see year in year out. The domino effect of unbalanced and distorted quarterly public expenditure is reflected in many economic indicators in the National Bank of Ethiopia (NBE) quarterly report. 

According to the NBE quarterly bulletin, about 40 percent of public budgets are consistently being used in the fourth quarter of the fiscal year. For example, in 2011 EFY, about 157 billion Birr (b) expenditure was reported in the 4th quarter as compared to the 1st, 2nd and 3rd quarter expenditure of 66.7b, 90.3b and 99b respectively indicating that the total expenditure in the 4th quarter was 135.40 percent more than the total expenditure in the 1st quarter. Similarly, in 2012 EFY, the total government expenditure in the 4th quarter was about 178.8b as compared to the 1st, 2nd and 3rd quarter expenditures of about 87.7b, 107.4b and 106.3b respectively. In this case, the 4th quarter expenditure in 2012 was 103.90 percent more than the total expenditure in the 1st quarter. Such highly skewed quarterly public expenditures obviously create allocation inefficiency. The sustained flow of such skewed periodic expenditure suggests a deep rooted structural problem of the public budget management. The burden of public institutions in the last quarter of the fiscal year, as reflected in the quarterly expenditure, will even increase the possibility of abuse and misuse of public funds.

The issue of inflation is one of the ever existing economic challenges in Ethiopia. This challenge will possibly have been aggravated by the unbalanced quarterly flow of public expenditure or in other words, by the current fiscal year calendar that has little consideration to some of the realities on the ground. The quarterly price index data of NBE indicates the trends of inflation taking the same path with the trend of public expenditure. The price index for food and non alcoholic beverages, for example, increases from the first quarter of the fiscal year to the 4th quarter and then consistently jumps further upward in the next new fiscal years. In 2018/19, the price index in the 1st quarter for the same item was 128.3 which increased to 145.6 in the 4th quarter; and then it jumped upward to 156.6 in the 1st quarter of 2019/20 and again increased to 179.2 in the 4th quarter of the same year.   

The little evidence we referred to above indicates that the current fiscal year needs to be changed as part of the government policy reform. We like to propose that aligning the current budget year with New Year will most likely address some of the challenges including public resource management, poor fiscal performance and some of macroeconomic challenges including inflation. 

In the context of aligned fiscal year, we propose the separation of the month of Pagume from both the fiscal year and calendar year, and treating it as unique as it is for unique goals of common interest. The month of pagume, being hidden inside the fiscal or calendar year, has put the value of uniqueness of the month invisible and unusable for better purposes. Separating the month of pagume from other calendars and dealing with it on its own will help to increase its value and help to mobilize the public to engage in high valued common public activities. In a way we suggest the month of Pagume to be separated and institutionalized with legal backing as a tool to unify and mobilize the Ethiopia people towards a particular national action movement on a yearly basis. 

Aligning fiscal year with New Year and handling the month of Pagume on its own will shift the last quarter of the fiscal year to June, July and August. The proposed last quarter is a belg season and highly rainy, and hence it is worthy to use the months as a last quarter to complete budget preparation, planning and approval so that the new budget year will begin on the same day as New Year. Beginning the budget year along with the New Year is assumed to improve the efficiency and effectiveness of fiscal performance as opposed to the current fiscal calendar. The assumption is that the New Year dynamics of people will increase the height of inspiration and motivation of public bodies and private actors from the beginning of the budget year to deliver better performance per unit of public expenditure.    

Changing the current fiscal year to New Year is also consistent with the agricultural seasons or even school year. In the agricultural calendar, the meher seasons, a season where more agricultural harvests are expected, begins from September and goes to the end of February. Assuming better planning in the 4th quarter (June, July and August) and larger public budget expenditures in the early times of belg season, it is reasonable to expect better prices for agricultural products from the beginning of New Year. If this assumption is proved true, the better price for agricultural products in the meher season will further encourage farmers to produce more in the forthcoming agricultural seasons and hence increased agricultural productivity. 

One can also argue that aligning fiscal year with New Year will benefit individuals and business communities. Common sense tells us that the business communities and individuals usually use the last quarter of the New Year (June, July and August) for planning for the new year.  The point is that aligning the budget year with the calendar year will create more harmony between public budget planning and private sector planning. Commonly the private sectors use the last quarter of the New year (June, July, August and Pagume) for reflection, revision and planning. New Year is used as an opportunity for Ethiopians to jump start with new visions and new hope to do better jobs. In the context of an aligned fiscal year, the assumed harmony between the public and private investments will contribute for the creation of healthy economic environments. The harmony in time allocations between the public and private sectors will also improve the readings between different economic actors. When a government plan is aligned with the dynamics of public expectation, it will obviously create more economic opportunities and better performance. The fiscal calendar aligned with New Year will also ease the projection and predictability of the economy and make the periodic reports more understandable for ordinary citizens.      

Instituting the Month of Pagume as a Month of Transition

The word pagume comes from the Greek word, epagomene which means “days forgotten when a year is calculated’. The month is uniquely Ethiopian and coined as the 13th month in the Ethiopian calendar. The advantage of uniqueness of the month and its short span is an opportunity to begin with. The uniqueness of the month is an input on its own which can be used to create some kinds of social capital.  With a legal backing and carefully crafted strategy, the 5 days of the month of Pagume can exclusively be devoted to achieving a particular goal of national interest on a yearly basis. The recent attempt of labeling each day of the month of Pagume by the Addis Ababa city administration as a way of mobilizing the public for a particular purpose is a good indicator that the month can be used for special activities of common interest in a more institutionalized and sustainable manner. In the Ethiopian tradition, Pagume is used at community, household and individual levels as a month of inspiration and preparation for New Year. Most Ethiopians use the month as a month for reflection, revision, resetting and planning for the New Year.  If this practice gets legal backing with an institutionalized approach, it will take the old established practice to new heights. 

Establishing a common stand on the month will magnify the value of uniqueness of the month on the one hand and on the other hand will help to mobilize and unify the social structure for a bigger and long-term goal of a united Ethiopia. For example, the month can collectively be used both by government and private staffs and its leaders to come together and jointly organize a feedback sessions, sessions of reflection, reviewing and internalizing on the New Year plans, reviewing ways of improving governance, service deliveries, business environment and using the month as the time of strengthen team spirit, recognition and rewarding . 

As part of economic and social reform, it will be more impactful if the month is legally permitted to be the days-off from the formal work activities in the public institutions and put into use to engage the public institutions, their leaders and staff as a time of reviewing and reflection. In the context of aligned fiscal year, the 4th quarter (June, July and August) will be a time to complete the New Year plan including planning and approval of the budget and the month a Pagume as a time of internalizing the New Year plan. If the month of pagume is institutionalized as a common time for collective works, the practice will in the long-term be instrumental as a way of structuring and unifying the society behind a common goal to develop common values. 

The Way Forward 

Even Though the Ethiopian fiscal year is rarely discussed in policy circles, history will tell as to when, how and why the current Ethiopian fiscal year started and remained the Ethiopian budget calendar. Fiscal year, as part of a fiscal policy, has some degree of connection with the performance of the public budget in a given year. Few evidence and other country experiences suggests that the way the budget year is arranged has a strong relationship with the economic, management and social issues of a country. The timing of the fiscal year is probably one of the unnoticed structures in the public budget management. Aligning the fiscal year with the calendar year is expected to improve fiscal performance, contribute to better economic management, increase the efficiency and effectiveness of resource utilization, reduce the misuse of public funds and save a significant amount of public budget or reduce its wastages. The proposal may require further analysis as to how feasible it is to align the current fiscal year with Calendar Year. The feasibility of the proposal can be evaluated from the perspective of creating harmony between public and private business cycles, its value addition for better management of public resources, and the significance or insignificance of costs to be incurred for a transition from the current fiscal year. 

The transition to the new fiscal year will have costs including reconfiguring the budget process and accounting; revising laws and regulations, training staff on changed financial reporting and auditing, changing timelines for planning, approval and procurements and so on. The level of costs to be incurred and the degree of disruptiveness of the proposed changes to the government’s business cycle and to the wider economy is not clear at this stage but it is important to weigh the benefits and costs of shifting the current fiscal year to New Year from different angles including the view of strengthening the value of uniqueness of Ethiopian calendar in the broader context of developing a culture that promotes unity.

Belayneh Begajo is an Economist, Researcher and Consultant. The work is solely the author’s personal proposal. He can be reached at  belaynehbb@gmail.com , twitter:@BelaynehB.
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