ADDIS ABABA, July 7 (Reuters) - Ethiopia's parliament approved a 178.6 billion-birr ($9.2 billion) budget for 2014-2015 on Monday, a 15 percent rise from the previous year that will boost spending on education, health and road building.
Strong state intervention has boosted the economy over the past decade and economic growth is set to rise to 8.5 percent in 2014/15 from 8 percent in 2013/14, the International Monetary Fund forecasts.
The IMF has warned that Ethiopia's huge spending on roads, railways and power is suffocating private lending. It says a reduced public expenditure would make room for the private sector to access credit.
The 2014/2015 budget, unanimously endorsed by lawmakers, allocates more than 64 percent of the total amount for development spending.
Of that, Addis Ababa will spend 24.55 billion birr on education, up from 22.48 billion the previous year. Health spending will rise 12 percent to 5.15 billion birr and 29 billion birr will be spent on road building.
Infrastructure projects over the last decade include hydro-electric dams and other power projects to offer cheap electricity, and a growing network of roads and railways.
Ethiopia, Africa's second-most populous nation after Nigeria, aims to expand its road network to 136,000 km (84,500 miles) by 2015 from less than 50,000 km in 2010.
It plans to build 5,000 km of railway lines by 2020. The capital will soon have its own metro, a rarity in Africa.
Defence spending will increase to 8 billion birr, from 7.5 billion, in a country with the largest army in the Horn of Africa.
Ethiopia is a key U.S ally in the region and is fighting al Qaeda-linked insurgents in Somalia as part of an African Union mission. It has also deployed peacekeepers in South Sudan.