Economic studies


Population 92.7 million
GDP per capita 873 US$
Country risk assessment
Business Climate
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major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%)* 8.0 10.9 7.5 8.3
Inflation (yearly average, %) 7.3 9.9 13.2 9.8
Budget balance (% GDP)* -2.4 -3.3 -3.7 -3.5
Current account balance (% GDP)* -9.0 -8.1 -6.2 -6.6
Public debt (% GDP)* 53.2 54.2 59.5 59.9


(e): Estimate. (f): Forecast. *Fiscal year from 8th July - 7th July. 2019 data: FY18/19.


  • Remarkable track record of growth and poverty reduction
  • Public investment in infrastructure development
  • Drive to diversify the economy
  • Strong hydropower potential
  • Warmer relations with Eritrea


  • Vulnerable to weather conditions and changes in world commodity prices
  • Landlocked country
  • Low foreign exchange reserves
  • Persistent challenges in the business and governance environment
  • Unstable regional context and strong ethnopolitical tensions

Risk assessment

Robust growth despite the transition to a new model

Growth is expected to strengthen in 2018-2019, after a robust performance in 2017-2018 despite inflation, currency shortages, political uncertainty, and low coffee and tea prices. Public investment and consumption will remain key elements of growth as the second Growth and Transformation Plan (GTP II) is implemented. While no new projects will be launched in 2018/19, the mega-projects already underway, such as construction of the 6,000 MW Grand Ethiopian Renaissance dam, will continue. The decision to open up certain state monopolies to foreign investors could stimulate private investment. The telecoms, aeronautics, energy, and transport sectors in particular may be affected. Investments could also go towards developing the manufacturing sector, particularly in agro-industry. The creation of special economic zones offering tax incentives and customs duties exemptions should also help attract investment in the textiles and building materials sectors. As a result, exports of manufactured goods, although low, are expected to increase, supported by the inauguration of the Djibouti-Addis Ababa railway line in January 2018. Increased agricultural production and improved competitiveness following the birr’s devaluation in October 2017 should bring growth in key exports, including coffee, tea, pulses, oilseeds and horticulture. Although inflation and limited access to foreign exchange will continue to dampen the expansion of private consumption, both are expected to ease in 2019.

Increasing risk of over-indebtedness

The fiscal deficit is expected to decline in 2018/19 thanks to a more prudent fiscal policy. Expenditure growth is set to be more contained: although capital investment spending will continue to increase, no new mega-projects will start in the 2018/19 financial year. The increased expenditure will therefore mainly be used to complete existing projects. Expenditure on infrastructure development should thus continue to absorb more than half of the budget, while current expenditure should be reduced. Although not particularly successful in recent years, efforts to improve tax revenues, which are equivalent to less than 15% of GDP, could be supported by the partnership signed with the United Kingdom in August 2018 to reform the tax system.

The current account deficit is expected to remain high, still suffering from its narrow export base. While efforts to lower capital goods imports reduced the trade deficit in 2017/18, the consumer goods bill is expected to rise. The large trade deficit is therefore expected to continue to affect the current account, despite the likely increase in exports. The services account will also remain in deficit due to import-related services. The transfer balance will continue to provide the main positive contribution to the current balance, thanks to donor funds and private remittances. Bilateral and multilateral loans remain necessary for financing, despite the increased contribution from FDI. The sizeable current account deficit, combined with a rigid exchange rate regime, will keep foreign exchange reserves low (two months of imports) and make it hard to access foreign exchange.

Although measures have been taken to contain the twin deficits and despite the share of concessional loans, the risk of debt distress is increasing. The repayment period for the Chinese loan to finance construction of the Djibouti-Addis Ababa railway line, which was extended from 10 to 30 years in September 2018, illustrates growing concerns about over-indebtedness.

A new Prime Minister for a new era?

In April 2018, the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF), a coalition in power since 1991, named Abiy Ahmed to be Prime Minister following Hailemariam Desalegn’s resignation. With ethno-political tensions rising since 2015, the appointment of a Prime Minister from the Oromo ethnic group, which for several years has been challenging the power of the Tigrayan minority ethnic group within the EPRDF, is a signal of appeasement. Prime Minister Ahmed’s moves to lift the state of emergency, release and grant amnesty to political prisoners, and sign an agreement with the Oromo Liberation Front, mark a radical departure from the previous government, which imprisoned tens of thousands of people in response to rising protests. Yet his reforms are far from being unanimously accepted within the EPRDF, while regular ethnic clashes since his appointment and a grenade attack at a rally in June 2018 show that the political and security situation remains fragile.

Internationally, 2018 was marked by the end of the state of war with Eritrea. Eighteen years after the fighting ended, Ethiopia has now fully accepted the terms of the Algiers Agreement signed in 2000. The peace agreements signed allow diplomatic and economic ties to resume.


Last update: February 2019

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