As Ethiopia continues to implement broad-based economic reforms under the supervision of an International Monetary Fund (IMF) programme, its government has announced a modest uptick in economic growth for the coming fiscal year, alongside a slight increase in the budget deficit.
Outlook for the Coming Fiscal Year
In a presentation to parliament on Tuesday, Finance Minister Ahmed Shide stated that Ethiopia’s economy is projected to grow by 8.9% during the fiscal year spanning July 8, 2025, to July 7, 2026. This marks a slight improvement from the 8.4% growth estimate for the current fiscal year.
The minister also revealed that the government is expecting a budget deficit of 2.2% of GDP, marginally higher than the 2.1% projected for the outgoing fiscal cycle. Total government expenditure is projected to reach approximately 1.9 trillion birr, or roughly $14 billion, during the upcoming year.
Reform-Driven Recovery Backed by IMF Support
Ethiopia’s current macroeconomic trajectory is closely tied to an ambitious reform agenda designed to stabilise public finances, liberalise key sectors, and attract foreign investment. These reforms are part of an ongoing agreement with the International Monetary Fund, providing financial support and technical assistance as the government seeks to overhaul longstanding structural challenges.
The IMF-backed programme includes policy changes aimed at improving fiscal discipline, strengthening public financial management, and transitioning towards a more market-oriented economy.
Rebuilding After Conflict
Although Ethiopia has been one of the fastest-growing economies in East Africa over the last decade, its momentum was severely disrupted by a two-year conflict in the northern Tigray region, which caused significant humanitarian, economic, and institutional setbacks.
The recent return to relative political stability, coupled with renewed international support and fiscal reforms, is contributing to the country's efforts to regain its economic footing. However, challenges remain in managing inflation, foreign exchange shortages, and infrastructure rebuilding.
Looking Ahead
The finance minister's projections underscore a cautious optimism about Ethiopia’s economic direction. While the slight rise in the budget deficit suggests increased public spending—likely tied to reconstruction, social programmes, and development initiatives—the government appears committed to maintaining overall macroeconomic stability.
Ethiopia’s economic performance over the next fiscal year will depend not only on domestic policy execution but also on global economic conditions, regional stability, and continued international cooperation.