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 114 million people) Ethiopia has experienced sustained growth of around 10% per year on average over the past decade. Main drivers of growth are agricultural production and services, sustained by foreign development aid. However, due to the COVID-19 pandemic, the locust invasion and the conflict in the Tigray region, the economic growth slowed down to reach an estimated 2% GDP in 2021, down from 9% in 2019. Coface expects the GDP growth to accelerate moderately to 4% in 2022, thanks to the easing Covid-19 restrictions and the ongoing recovery of key trading partners. Downside risks include the persistence of the conflict and rising external debt levels (Focus Economics).

Ethiopia's strong economic growth was halted by the coronavirus crisis, a locust infestation and an increasingly violent conflict. The support plan implemented in response to the crisis, and in 2021 increased conflict-related expenditures and debt service, lead to the deterioration of public finances. Public deficit widened from -2.8% GDP in 2020 to -3% GDP in 2021, and is expected to further increase to -3.5% GDP in 2022 (Coface). As the conflict is affecting relations with major external creditors, the deficit will be financed mainly through domestic sources (Coface). Public debt increased from an estimated 55.4% GDP in 2020 to 57.1% GDP in 2021 (IMF). It is expected to reach 60% GDP in 2022 (Coface). The depreciation of the birr will weigh on external public debt. In high risk of debt distress, Ethiopia requested to G20 and Paris Club creditors to benefit from a debt operation under the G20 Common Framework. The country benefited from a suspension of debt service payments but despite the reforms announced, the debt restructuring process is taking time. Driven by rising food prices and the depreciation of the birr and exacerbated by the conflict, inflation soared to 25.2% in 2021 (IMF). Coface forecasts the inflation to decrease to 22% in 2022, remaining well above the central bank’s single-digit target. 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, weaker-than-expected global growth, 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. 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 2.4 years. According to the World Bank, the unemployment rate in 2020 was 2.8% of total labour force. The conflict in the Tigray region caused massive internal displacement and increased famine, putting the country on the brink of a humanitarian disaster (WFP).

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