Ethiopia’s recent economic reforms, including the floating of the Birr and fiscal adjustments, have garnered international praise, with Fitch Ratings upgrading the country’s local currency credit rating from CCC- (very bad) to CCC+ (still not great but better). However, many non-mainstream economists argue that these changes, while addressing macroeconomic imbalances, fail to tackle the deeper structural challenges Ethiopia faces. The question remains: who benefits from these reforms, and at what cost to ordinary Ethiopians?

Let’s review the good, the bad and the ugly to understand where the country stands:

The improved credit rating reflects Ethiopia’s alignment with policies promoted by international lenders like the IMF and World Bank. These include devaluing the Birr and introducing stricter fiscal discipline. While these measures have stabilized financial indicators, they do little to address the real economy’s challenges.

Indeed, Ethiopia remains in “Restricted Default” (meaning it’s still behind on payments to foreign lenders) on its foreign-currency obligations, highlighting its unresolved external debt crisis.

The ratings upgrade primarily reassures international creditors and investors, while most Ethiopians continue to face rising inflation, unemployment, and stagnant wages.

Many analysts warn that celebrating this upgrade risks ignoring the ongoing social and economic struggles of millions of Ethiopians, and let’s not forget the on-going conflicts and violence costs in Amhara and Oromia regions.

The Cost of Devaluation

From the ordinary citizens point of view the devaluation of the Birr as a solution to address the economic woes of the country is a heavy price to pay for stability. The floating of the Birr, which caused its value to plummet by over 50%, aligning the official exchange rate with the market rate, while hailed as a step toward transparency, this devaluation has intensified economic hardships.

It has risen costs of imported goods, including fuel, medicine, and food. This is devastating for a country where 15 million people depend on food aid. The devaluation has also reduced the value of wages and savings held in Birr, worsening inequality and deepening economic vulnerability.

Now to those proponents who argue that devaluation makes exports more competitive, should know that Ethiopia’s export sector lacks the diversity and scale to benefit significantly, making this assumption unrealistic in the short term.

In short, devaluation disproportionately burdens the poor and working-class populations while prioritizing the interests of creditors and financial markets.

Austerity in Disguise

Reforms under the IMF’s Extended Credit Facility aim to narrow Ethiopia’s fiscal deficit and reduce reliance on domestic borrowing. These include a 15% interest rate to curb inflation and efforts to limit public spending. However, lowering government borrowing means less money for essential services like education, health, and social protection—critical areas for a country with a 24% poverty rate. Plus, the sharp rise in interest rates risks stifling private sector growth, especially for small businesses, potentially increasing unemployment and slowing economic recovery.

Critics describe these measures as austerity-like policies that may stabilize macroeconomic indicators but exacerbate social inequalities.

Let’s sum up the situation over the debt restructuring.

Ethiopia is restructuring $15.1 billion in external debt, including a suspended $1 billion Eurobond payment, under the G20 Common Framework. While necessary, this highlights Ethiopia’s reliance on external lenders. No question that continued reliance on the IMF and World Bank limits Ethiopia’s policy autonomy, making the country vulnerable to the priorities of international creditors.

Debt restructuring often benefits creditors over debtor nations, diverting resources from public investment to debt repayment. Even as Ethiopia renegotiates terms, debt servicing consumes critical funds that could be used for infrastructure, healthcare, or education.

Some view this as a continuation of a neo-colonial economic relationship that prioritizes creditor interests over Ethiopia’s development.

According to many economists the reforms seem to ignore the country’s deep-rooted structural issues. Just to clarify, Ethiopia remains heavily reliant on rainfed agriculture, which is increasingly affected by droughts, locust infestations, and climate change. Current reforms offer little support for building resilience in this sector.

The assumption that a weaker currency will drive export growth ignores Ethiopia’s limited industrial base, which lacks the capacity to capitalize on devaluation.

Let’s also not forget the regional inequalities, exacerbated by conflict in areas like Oromia and Amhara, not forgetting Tigray, require significant public investment. However, fiscal constraints limit the government’s ability to rebuild and support affected communities.

Who Gains from the Reforms?

The primary beneficiaries of Ethiopia’s reforms are: (i) Foreign Investors – Devaluation and higher interest rates make Ethiopia more attractive to investors seeking high returns; (ii) Multilateral Lenders, including the IMF and World Bank gain greater influence over Ethiopia’s economic policies while ensuring loan repayments; of course, export-oriented businesses benefit from a weaker Birr, the gains are limited to a small segment of the economy. In contrast, ordinary Ethiopians face higher living costs, reduced public services, and stagnant wages, deepening economic inequality.

Is there a better path forward?

Many economists advocate for reforms that prioritize Ethiopia’s people over external creditors. They urge expanding funding for education, healthcare, and social protection to reduce poverty and build a skilled workforce. Argue for heavy Investment in irrigation, climate adaptation, and food systems to reduce dependency on food imports and improve food security. These economists focus on industrial development through targeted subsidies and public investment rather than relying solely on export-driven growth, and push for more equitable debt restructuring mechanisms that prioritize development over repayment.

Finally, for whom are these reforms?

While Ethiopia’s credit rating upgrade signals progress, I argue that the current reforms prioritize external stability over domestic well-being. Without addressing the structural causes of poverty and inequality, these changes risk deepening Ethiopia’s dependency and exacerbating social discontent. For Ethiopia’s reforms to truly succeed, they must shift focus from appeasing international creditors to building an inclusive and resilient economy for all Ethiopians.