Foreign debt servicing is set to consume nearly 30% of Ethiopia’s proposed federal budget for the 2025/26 fiscal year, Finance Minister Ahmed Shide told lawmakers on Tuesday, as the country grapples with growing repayment obligations and currency depreciation.
The record 1.93 trillion Birr budget, tabled before Parliament this week, earmarks 463.3 billion Birr for external debt service—a staggering sum that underscores the fiscal pressure Ethiopia faces amid ongoing macroeconomic instability.
The bill, which was approved by the Council of Ministers last week, allocates:
1.18 trillion Birr for recurrent spending,
415 billion Birr for capital expenditures, and
415 billion Birr for regional subsidies.
According to the Finance Ministry, a significant portion of regional support will go to the Oromia, Amhara, Somali, and Tigray regions, which are expected to receive more than half of the subsidy budget.
Notably, the budget proposal does not allocate a specific subsidy for the Addis Ababa City Administration, which received 5.4 billion Birr last year. The omission has raised questions, though officials have not offered a public explanation.
The government plans to channel:
7.2% of the total budget to education,
3.8% to health, and
nearly 6% to defence.
Minister Ahmed also told Parliament that the budget plan includes a deficit of 416.8 billion Birr, with roughly half of that shortfall expected to be financed through domestic borrowing.
Although the 2025/26 budget is more than double the 971.2 billion Birr budget approved in June 2024, it reflects a decline in real value due to currency depreciation. At current exchange rates, the proposed budget is estimated at USD 15 billion, down from USD 17 billion last year. That figure does not include the 582 billion Birr supplementary budget passed in November 2024.
The steep increase in Birr-denominated spending is partly due to inflationary pressures, currency volatility, and debt repayment obligations following years of heavy borrowing for infrastructure and military spending.
Ethiopia, one of Africa’s most populous nations, continues to face economic headwinds including foreign currency shortages, ballooning external debt, and conflict-related fiscal burdens—challenges that have complicated both budget planning and fiscal sustainability.
The government’s growing reliance on domestic borrowing to plug deficits is also raising concerns among economists about crowding out private sector credit, as well as the risk of further inflation if deficit financing turns heavily to central bank support.
Lawmakers are expected to vote on the proposed budget before the start of the new fiscal year on July 8, 2025.
The Finance Ministry has yet to disclose full details of how external loans will be structured or whether any debt restructuring talks are ongoing. However, analysts suggest the government may seek concessional financing and multilateral support to reduce pressure on forex reserves.
As Ethiopia navigates its post-conflict recovery and ongoing economic reforms, the composition of this year’s budget could serve as a key test of fiscal discipline, governance reforms, and donor confidence.
