Ethiopia’s economy is expected to grow by 8.9% in the upcoming fiscal year, a slight increase from this year’s estimated 8.4%, according to projections presented by the country’s Finance Minister Ahmed Shide on Tuesday.
The new fiscal year runs from July 8, 2025, to July 7, 2026, and comes as the East African nation pushes ahead with wide-ranging economic reforms supported by the International Monetary Fund (IMF). These reforms are aimed at stabilising the macroeconomy, encouraging private investment, and modernising Ethiopia’s fiscal management after years of political and economic turbulence.
Presenting the annual budget plan to parliament in Addis Ababa, Shide revealed that total government expenditure will rise to 1.9 trillion birr (approximately $14 billion). At the same time, the budget deficit is projected to edge up slightly to 2.2% of GDP, from 2.1% in the current fiscal year.
“The government remains committed to ensuring that spending is directed toward key growth drivers such as infrastructure, health, education, and security,” Shide said.
While Ethiopia remains one of the fastest-growing economies in Africa, its economic trajectory has been slowed by conflict, climate shocks, and rising inflation. The two-year civil war in the northern Tigray region, which officially ended in late 2022, inflicted substantial damage on critical infrastructure and disrupted trade, agriculture, and livelihoods.
Now, with peace efforts stabilising, Ethiopia’s government is attempting to rebuild trust and attract investment. The anticipated 8.9% growth rate suggests optimism around post-conflict reconstruction, improved agricultural productivity, and ongoing reforms in telecommunications, banking, and logistics sectors.
However, the slight increase in the fiscal deficit signals the continued challenge of balancing growth with fiscal discipline. Analysts suggest that additional borrowing—either domestic or external—could be used to finance the gap. The IMF loan programme, approved earlier this year, is seen as a key source of concessional financing and technical support to help Ethiopia manage its public finances more efficiently.
Still, inflation remains a concern, hovering in the double digits. The Ethiopian central bank has been under pressure to stabilise the birr, which has depreciated significantly in recent years, driving up the cost of imports and putting strain on household budgets.
International observers are also closely watching Ethiopia’s debt levels. According to the World Bank and IMF, the country is at high risk of debt distress, with rising external debt servicing obligations expected to weigh on foreign reserves.
In an effort to boost domestic revenue, Shide highlighted plans for tax system modernisation, broader enforcement of value-added tax (VAT), and efficiency improvements in customs and public procurement.
The government also aims to strengthen economic governance and transparency by accelerating the digitisation of services and expanding public-private partnerships in priority sectors.
With nearly 120 million people, Ethiopia is Africa’s second-most populous nation and is widely viewed as a potential engine of growth for the Horn of Africa—provided it can sustain peace, control inflation, and navigate its reform agenda without social or political backlash.
As the 2025/2026 fiscal year approaches, key stakeholders—including development partners, investors, and credit rating agencies—will be monitoring how Ethiopia balances growth ambitions with fiscal realities in a challenging global environment.
