maintain fiscal stability. Block grants are allocated to the regions on the basis of a formula approved by the House of the Federation. A number of variables (population, development indicators, revenue performance) are assigned different weights. The variables and weights are regularly revised to factor in the different needs and concerns raised by different regions from time to time. Thus, block grants from the federal government in 2007/08 accounted for 85 percent of total regional resources. All regions except Addis Ababa benefited from the Federal Block grant system. 393 In addition to block grant transfers, there are a number of Specific Purpose grant transfers from the federal government to regions. These are federal resources and are indicated in the budget lines of federal executive bodies. However, they are used to finance such programmes as Food Security, Productive Safety Nets, construction of elementary and primary schools, agricultural and extension worker training, health facility construction, Public Sector Capacity Building (PSCAP), HIV/AIDS and Water, Sanitation and Hygiene (WASH), programmes that, in many instances, full under the ambit of regional states and woreda administrations. Spending on these programmes accounted for a larger proportion (about 23%) of total regional budget spending in 2007/08. Regional states derive only about 15-20 percent of their annual budgets from revenue collection and mobilising funds from donors and NGOs. Regional allocations to woredas also correspond to a formula approved by the regional council. Woredas prepare their budgets which also have to be approved by the woreda council. 394 During the CRM consultations, a number of issues were raised concerning the management and use of decentralised funds. These include: • Inadequate local capacity to plan, manage and account for the funds; • Lack of effective oversight mechanisms; • Limited scope for most regional states to raise the 15-20 percent component; • Under-spending by some local authorities due to late disbursements from central government and the lack of absorptive capacity at the lower levels; • Working language differences, in some cases, make auditing block grants to regional state difficult to accomplish. 395 These challenges, as well as those identified in the CSAR, are being addressed by government. As a result, specific measures are being taken or planned to improve the situation. - 163 -