International public sources account for approximately 93 per cent of Ethiopia’s tracked climate finance, highlighting the country’s dependence on external funding as droughts, floods and erratic rainfall threaten its economy, according to a new report.
The study, Financing Climate Adaptation Priorities in Ethiopia, puts average annual tracked climate finance at US$2.36 billion in 2022 and 2023, compared with estimated annual adaptation and mitigation needs of US$10.6 billion.
Adaptation alone requires approximately US$4 billion annually, against tracked inflows of US$1.4 billion.
However, the authors caution against treating those figures as an exact financing deficit because historical flows and projected needs cover different periods, while domestic spending may be underreported.
Prepared under the Adaptation Accelerator Hub, with Ethiopian government leadership, technical support from the United Nations Development Programme and funding from Italy, the report identifies limited private investment and weak project preparation as major obstacles.
Grants represented 80 per cent of tracked public flows, while concessional loans accounted for approximately 14 per cent. Private actors contributed an estimated US$113 million annually, less than five per cent of total tracked climate finance.
The report warns that climate change could reduce Ethiopia’s annual gross domestic product by as much as five per cent within the next two decades.
Disrupted rainfall affects agricultural production, household incomes and exports, while degraded watersheds threaten irrigation, urban water supplies and hydropower. Flooding damages roads, interrupts trade and increases infrastructure costs.
Rapid urbanisation adds pressure, making resilient drainage, transport, water and energy systems increasingly important.
Although financial-sector reforms and capital-market development offer new funding opportunities, the report says credible investment proposals remain essential.
Many adaptation projects lack adequate climate-risk assessments, feasibility studies, cost estimates, financing structures, safeguards and implementation arrangements.
The study proposes a six-stage preparation process covering identification, climate-risk substantiation, screening, financial structuring, detailed preparation, and financing and delivery.
The Adaptation Accelerator Hub is intended to strengthen early-stage project development and coordination among ministries, banks, development finance institutions, climate funds and investors.
The report also identifies early-warning systems, digital agricultural advice, climate-health surveillance and agricultural insurance as priorities alongside physical infrastructure.
