Economic Outline

Economic Indicators

From 2004 to 2018, Ethiopia - Africa's second most populous country - saw rapid growth under a state-led model that improved infrastructure and living standards. However, it relied on an overvalued currency, rising debt, and restrictive regulations, which limited private investment, drove inflation, and failed to boost productivity or create enough jobs for the two million new job seekers each year. Growth stood at 7.2% in FY23 following the end of the Tigray conflict and stayed strong in FY24 (6.1%), supported by good harvests and reforms. However, worsening forex shortages and revenues below 7% of GDP increased economic strain. Short-term growth may slow due to tighter monetary policy and investor uncertainty but is expected to recover as conditions stabilise and forex access improves. The World Bank forecasts growth at 6.5% in FY 2024/25 and 71% the following year.

Ethiopia’s fiscal deficit fell to 1.8% in FY24, easing reliance on inflationary central bank financing. Tax reforms and higher development aid are expected to boost public spending over the forecast horizon, reversing recent declines in real expenditure. Fitch forecasts the fiscal deficit to increase to 2.7% of GDP in FY25, as higher spending— including a 1.5% of GDP support package and public wage hikes—outweighs revenue gains from FX reforms. Interest payments are also set to rise to 1.2% of GDP, up from 0.6% in past years. The debt-to-GDP ratio decreased to 33.6% in 2023, down from 38.7% the previous year, and is expected to increase to 41.8% in 2025 before returning on a downward path, according to the IMF. Ethiopia is seeking to restructure about USD 15.1 billion in external debt (including arrears as of end-June 2024) under the Common Framework, which it joined in 2021. In November 2023, it secured an interim debt standstill with the official creditor committee and major Chinese lenders, suspending USD 1.3 billion in bilateral debt service for 2023–2024. Moreover, in March 2025, Ethiopia reached an Agreement in Principle (AIP) with its Official Creditor Committee (OCC) on the key financial terms of a debt treatment under the G20 Common Framework, covering about USD 8.4 billion of outstanding public debt, with a debt service relief totalling approximately USD 2.5 billion over the period 2023-2028. Preliminary figures from the IMF show that inflation slowed to 26.6% in FY 2023/24 (from 32.5%) and is expected to gradually decrease to 10.6% in FY 2026/27.

Despite doubling over the last decade, GDP per capita in Ethiopia remains one of the lowest globally, estimated at USD 4,045 in 2024 by the IMF (PPP). Poverty reduction remains challenging due to demographic dynamics and a low initial level of development. To mitigate the short-term poverty impacts of macroeconomic reforms, the government committed to expanding social assistance, including a nearly five-fold increase in spending, wage hikes for the lowest-paid civil servants, and a temporary social package worth 1.1% of GDP. The unemployment rate stood at 3.4% of the total labour force in 2023, according to the World Bank, but the vast majority of the workforce is still employed in the informal economy.

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