Ethiopia will reduce its financial reserves by 3.9 percent to tame raging inflation, which reached 35 percent last year.

Prime Minister Meles Zenawi told parliament on Tuesday that the country’s central bank had a lot of money in reserves but he did not mention the actual amount.

“Our huge money reservoir will be reduced by 3.9 per cent to tackle the rising inflation,” he said.

He said the Ministry of Finance will stop borrowing money from the central bank to tackle inflation.

Ethiopian Prime Minister, Meles Zenawi: ©Reuters

Food, edible oil, grains and other commodity prices have sky rocketed recently, a situation that has impacted negatively on ordinary Ethiopians.

Inflation Problem

Meles  said attempts by the central bank to sell bonds had also failed forcing the government to borrow more.

“This was also our problem for the inflation,” he said. “Now the government will stop borrowing from the bank and will stick to selling bonds.

“This will help us to minimise the inflation, which has been rising since May.”

Meanwhile, on Tuesday Ethiopia’s parliament approved a proposed US$6.8 billion budget for the 2011/2012 fiscal year.

The budget, which exceeds last year’s estimates by 39 per cent is the highest in the Horn of Africa country's history.

At least US$1 billion will be spent on road construction and another US $ 500 million will go to education. Defense will get US$350 million.

Meles said 75 per cent of the budget will be financed from local resources and the remainder by donors.