With the change or government in 1991 Ethiopia made a transition from a highly centralizedrnpolitical and economic system to that or a federal system. Parallel with the administrativernrestructuring, the liscal system was reformed to fit the federal arrangement. expenditure andrnrevenue powers were assigned to the federal and regional governments and various solutions wererndesigned for the problems in the intergovernmental fiscal relations.rnAs a new experience, this radical shin from centralism has laced many challenges, but equally, hasrnmade a lot of progress. The expenditure assignment is highly decentralized. The regions haverntaken major res responsibilities in agriculture, education and health : and a considerable sharc in thernexpansion of ot her social and economic infrastructure. Especially the previously neglectedrnperipheral regions are getting more attention by the federal government to improve theirrnbackward situation .rnOn the revenue s id e, though the assignment is not far from what economic theory suggests, inrnpractice the center controls the largest share- about 83%, and the regions, only 17%. The regions'rnown revenue could only cover about 3 I % of their expenditure. As a result a large share of theirrnbudget is financed by central government transfers. Hence there is still greater dependence on therncenter.rnThe main causes lo r the high dependency, besides the assignment problem, is the poor economyrnof th e country. Most of the regions have low tax capacity most economic activities arernconcentrated on very few areas. There is wide diversity among the regions in population, naturalrnresource, infrastructure, manpower capacity etc. and some regions are more disadvantaged thanrnothers in various criteria . Among the problems in the decentralization process, manpower problel11rnhas been the major bottleneck for inefficient and low budget utilization . The decentralizationrnprocess could not go to lower administrative levels as was intended due to manpower constraintrnespecially in some regions.rnThough there are improvements in the performance of the regions over the years, greater effort isrnneeded to solve the multifaceted problems. Extensive training especially in the previouslyrndisadvantaged areas; civil service reform specially in the salary scale: revising the deficiencies inrnthe laws, procedures and directives regarding borrowing, revenue sharing, budge ting process etc.;rnmodifying the revenue assignment in favor of the regions; strengthening joint forums between thernregions and the center to discuss and solve problems: improving the political environment of somernof the regions; arc some or the issues which need emphasis. thc central government should playarngreater role to improve the conditions that would enable the regions to reduce their dependencernand increase their autonomy.rngiven Ethiopia's enormous diversity in ethnic and other criteria, and given its history or internalrnconflicts, we call say that a decentralized administrative structure with federal relations among thernregions is the most appropriate form of government. The short comings and ambiguities in the lawrnthat deal with the intergovernmental fiscal relations and other arrangements, and the deficienciesrnthat are seen ill the regional government s' fiscal and other performances should not be causes forrntotally discrediting the system and cases for opting an alternative towards a highly centralistrntradition.