Ethiopia’s economy grow by 7.3% in the 2023/24 fiscal year, driven by strong performances in industry and agriculture, according to the 2025 African Economic Outlook (AEO) report released by the African Development Bank (AfDB) Group. However, despite this robust growth, the country’s financial stability remains under “cautious stables,” with inflation, debt risks, and social challenges continuing to weigh heavily on the economy.
The report highlights that Ethiopia’s economy expanded by 6.6% in 2022/23 and is expected to accelerate to 7.3% in 2023/24. This growth is largely attributed to private consumption and increased investment, particularly in the industrial sector, which is forecast to grow by 9.2%, and the agricultural sector, expected to grow by 7.0%. The services sector also contributed significantly, reflecting a diversified growth pattern.Minister of Planning and Development Fitsum Assefa recently echoed these findings, noting impressive gains in agricultural productivity, industrial capacity utilization, and digital economy growth. Merchandise exports, service exports, foreign direct investment, and remittances have all shown positive trends, signaling a broad-based economic recovery.Despite the encouraging growth figures, inflation remains a major concern.
The report cites an annual inflation rate of 26.6% in 2023/24, driven by rising food prices (28.1%) and non-food items (24.3%). Supply chain disruptions caused by the ongoing Russia-Ukraine conflict and internal instability in northern Ethiopia have exacerbated price pressures.In response, the National Bank of Ethiopia (NBE) has implemented a restrictive monetary policy, limiting credit growth to help control inflation. While these measures have helped temper inflation from previous highs, the rate remains elevated, impacting the cost of living and business operations.Ethiopia faces mounting risks of a debt crisis, with the report highlighting the country’s inability to meet a $33 million Eurobond payment due in December 2023 as a critical warning sign.
Although the fiscal deficit has narrowed to 2.0% of GDP in 2023/24—thanks in part to the Pretoria peace agreement with the TPLF and cuts in defense spending—the current account deficit remains at 2.9% of GDP.The AfDB report stresses the importance of prudent debt management and continued fiscal consolidation to avoid further economic instability. It recommends accelerating foreign public debt negotiations and exploring innovative financing options such as green bonds and social impact bonds to fill funding gaps.The Ethiopian banking sector remains “cautiously stable,” with a non-performing loan ratio of 3.9% and loan growth limited to 12.9% due to credit restrictions. However, social challenges persist, with a national poverty rate of 27% and an overall unemployment rate of 8%, including a youth unemployment rate exceeding 27%. Ethiopia’s Human Development Index (HDI) stood at 0.5 in 2022, ranking 193rd out of 176 countries, underscoring the need for inclusive growth.The report emphasizes the necessity of mitigating risks through peacebuilding efforts, accelerating reforms, and enhancing institutional capacity. It also highlights the need to leverage Ethiopia’s abundant natural and human resources by improving infrastructure, adopting new technologies, and strengthening governance.
