Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Africa's second most populous country (more than 120 million people) Ethiopia has experienced sustained growth of around 10% per year on average over the past decade. The main drivers of growth have been agricultural products and services, sustained by foreign development aid. However, the Ethiopian economy has been subject to multiple shocks over the past two and a half years, including the COVID-19 pandemic, drought, conflict in the north, and the war in Ukraine, creating significant macroeconomic and humanitarian challenges. According to the latest IMF estimates, GDP growth decelerated to 3.8% in 2022 (from 6.3% one year earlier). For 2023, the economy is expected to pick up to 5.3%, driven by industry and by private consumption and investment, replacing Kenya as the fourth-largest economy in sub-Saharan Africa amid the easing of armed conflict in the nation and the continuation of ambitious economic reform programmes (IMF).

According to figures by Fitch Ratings, the general government fiscal deficit widened to 3.4% of GDP in FY22, owing to lower revenue collection and a supplemental budget that increased military and humanitarian spending. However, the debt-to-GDP ratio decreased to 46.4% in 2022, from 53% one year earlier, and is expected to decline further this year (40.4%) and the next (37.4% - IMF). While more than half of government debt is held by external creditors, the overwhelming majority is held by multilateral and bilateral lenders. A significant share of domestic debt has been in the form of direct advances from the National Bank of Ethiopia, reaching ETB 160 billion (2.7% of GDP) as of end-FY22 (Fitch Ratings). Ethiopia has been recording high levels of inflation in recent years, with a further uptick in 2022 (to 33.6%) due to the rise in food prices (which account for the largest share of the consumption basket) exacerbated by drought in some areas and the Tigray conflict that complicated domestic supply chains. For 2023 and 2024, inflationary pressures should ease, with a marginal decrease in the inflation rate to 28.6% and 21.1%, respectively (IMF forecast). Furthermore, progress on implementing roadmaps on foreign exchange reforms and modernization of monetary policy should help address foreign exchange shortages and reduce inflation. The authorities are pursuing the “Homegrown Economic Reform Plan”, which consists of a mix of macroeconomic, structural and sectorial policies, to address vulnerabilities and tackle structural bottlenecks inhibiting private sector activity. Also, numerous projects will be launched under the third “Growth and Transformation Plan 2021-2025”. According to the IMF, in the medium term, macroeconomic and structural reforms should lead to a reduction in public debt, lower external vulnerabilities, and stronger growth, investment and exports. Nevertheless, this outlook can be challenged by downside risks, in particular from domestic opposition to reforms, rising protectionism worldwide, the war in Ukraine, and climate-related shocks.  

Although GDP per capita has doubled over the last 10 years before the COVID-19 pandemic, it remains one of the lowest in the world (estimated at USD 3,434 in 2022 by the IMF – PPP). Demographic dynamics and a low initial level of development make poverty reduction challenging. Life expectancy at birth is only 64 years and the average duration of schooling is 7.8 years. According to the World Bank, the unemployment rate in 2021 stood at 3.7% of the total labour force (latest data available).

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