move upward again, and the exceptional assistance provided by donors during 2008/09 falls away. This is reflected in a decline in foreign exchange inflows, declines in external reserves - measured in terms of months of import cover, a drop in remittance inflows, and a close to 11 percent depreciation of the Birr in the last 1 year, as reported by the African Development Bank. Declines in international commodity prices (e.g. coffee), a fall in tourist receipts and in inflows of foreign direct investments over the same period, have also been associated with the global economic crisis. The challenge for Ethiopia is to devise measures that will cushion the country from the adverse impacts of the global economic crisis. Fiscal Policy 315 Ethiopia’s current fiscal policy objective is to achieve sustained increases in domestic resource mobilisation, public debt sustainability, and the efficient use of highly concessional resources for poverty reduction and development-related activities. Within the government’s medium-term economic programme, fiscal policy stresses two main objectives: (i) the re-orientation of budgetary resources away from defence toward poverty alleviation outlays; and, (ii) tax reforms aimed at improving revenue performance. However, the government’s recent fiscal activities, to a large extent, continue to highlight the significance of donor support. To this end, and despite the difficult macroeconomic situation of the past two years, government has pursued efforts to enhance domestic revenue mobilisation and exercise prudent public expenditure management. Several tax measures were implemented in 2002/03 to promote revenue mobilisation, one of which was the introduction of VAT. Efforts were also made to improve tax administration and collection, including strengthening the large taxpayer unit, accounting for about 75 percent of total tax revenues, and expanding the activities of the tax reform taskforce. As a result, total tax revenue rose to the equivalent of about 13 percent of GDP in 2005/06, although declining to 9.7 percent in 2007/08. In addition, measures are being pursued to collect tax arrears. They include empowering enforcement and special units to deal with arrears. These units are expected to be strengthened with the introduction of automated tax identification numbers (TIN). Fiscal policy has also been increasingly countercyclical in Ethiopia - a relatively low deficit during boom times and high deficits during periods of downturn - a sharp contrast to the pro-cyclical fiscal policy seen in most developing countries. 316 According to PASDEP of 2005/06-2009/10, the ongoing tax reform programme will achieve the following: • Strengthen revenue collection institutions through restructuring, adequate staffing and training, particularly for revenue collection, accounting and audit functions; - 135 -