Ethiopian Cities Financial Management Quagmire: A Survey of Factors Influencing Under-Utilization of Capital Budgets in Selected Municipalities

Abstract

Capital budgets are instruments of fiscal policy because they can indicate the worth of a public body and they are vehicles of development. An audit report from the General Auditor’s Office of the Addis Ababa City (2009), indicates that some surveyed twelve offices and institutions have failed to utilize close to 70 million birr from 190 million birr capital budget allocated to them for the fiscal year 2007/08 (Ethiopian calendar). The aim of this research was to assess the challenges and prospects in the management of capital budgets in Ethiopian municipalities. The study questions the efficiency, effectiveness and political commitments to public sector financial reforms that have been originated by the Federal Government of Ethiopia. From a captured group of four hundred senior managers thirty were selected conveniently to participate in this descriptive survey research. Also documentary evidence was respected. One problem identified was inadequate planning of programs before budget allocation. Councilors do not understanding principles of budgeting. An exacerbating factor is the absence of skilled and knowledgeable and experienced employees who can provide the necessary technical information crucial to the making of management decisions. Bureaucratic procedures and lack of political commitment to budget approvals and availing of funds to development programmes is a problem. Councillors’ level of education impedes planning leading ultimately to inadequate investment and under utilization of approved capital budgets.

Fragmentation of planning and budgeting delays implementing and completing projects. The policies guidelines are not clear. Procurement and contracting of services are delayed because of bureaucracy. The country supports financial and other forms of decentralization. This means that commitment is their even if management problems are many. Since the quality of manpower in any organization is the major catalyst for development, effectiveness and efficiency, the municipalities need to capacitate their personnel. The general problem therefore revolves around governance.

Keywords: Finance, financial management, governance, good governance, under-utilization, capital budget, recurrent budget, capacity building