22.05.2026
Ethiopia’s economy strengthened in 2025 as the authorities advanced major macroeconomic reforms, including exchange-rate liberalisation, tighter monetary policy, tax reforms and steps toward debt restructuring. Growth was stronger than expected, supported by agriculture, mining, construction, manufacturing and a sharp rise in exports. Inflation declined substantially from earlier highs, although price pressures remain significant. The outlook for 2026–2027 remains positive, but risks are elevated due to foreign-exchange market distortions, commodity-price pressures, regional conflict, debt negotiations and the challenge of shifting from stabilisation to private-sector-led growth.
| Indicators | 2025 | 2026 | 2027 |
|---|---|---|---|
| GDP growth (%, yoy) | 9.2 | 8.0 | 6.9 |
| Inflation (%, yoy) | 16.0 | 11.6 | 12.1 |
| Employment rate (% of working-age population, 15+) | 64.9 | 64.6 | 64.4 |
| Fiscal balance (% of GDP) | -1.1 | -1.8 | -1.4 |
| Gross public debt (% of GDP) | 38.6 | 34.9 | 30.5 |
| Current account balance (% of GDP) | -1.1 | -2.3 | -1.8 |
Growth remains strong after major reforms
Ethiopia’s real GDP growth reached 9.2% in 2025, supported by robust crop harvests, mining, construction and manufacturing. Exports increased sharply, helped by high global prices for gold and coffee, while improved foreign-exchange availability supported imports and business activity.
Growth is projected to remain strong at 8.0% in 2026 before moderating to 6.9% in 2027. The slowdown reflects the impact of external shocks, including higher commodity prices and regional trade disruptions, but growth should remain high by regional standards. Sustaining this performance will depend on continued reform implementation, improved foreign-exchange market functioning and stronger private investment.
Inflation declines but remains a key risk
Inflation fell significantly in 2025, averaging 16.0%, after several years of very high price growth. By early 2026, inflation had declined to below 10%, supported by tighter monetary policy, an end to monetary financing and exchange-rate reform.
Inflation is projected at 11.6% in 2026 and 12.1% in 2027. Although this is far below the extreme levels seen earlier, price pressures remain high. Risks come from food prices, fuel costs, exchange-rate adjustment, rapid money growth, regional trade disruptions and commodity-price shocks. Protecting vulnerable households through targeted safety nets will remain important.
Fiscal position improves but reform costs remain
The fiscal deficit narrowed to 1.1% of GDP in 2025, helped by stronger revenues and reform momentum. Tax revenues increased sharply in the first half of 2026, allowing higher spending on health, education and social protection after years of fiscal compression.
The deficit is projected to widen to 1.8% of GDP in 2026 before narrowing to 1.4% in 2027. Public debt is expected to fall from 38.6% of GDP in 2025 to 30.5% in 2027, supported by growth, debt restructuring and fiscal reforms. However, risks remain from state-owned enterprises, debt negotiations with private creditors and the need to increase development and social spending.
External position improves but remains vulnerable
The current account deficit narrowed to 1.1% of GDP in 2025, supported by strong export growth, remittances and improved foreign-exchange inflows. Official reserves increased significantly, reaching a much stronger position than before the reform programme.
The current account deficit is projected to widen to 2.3% of GDP in 2026 as import demand rises with improved foreign-exchange availability, before narrowing to 1.8% in 2027. The external outlook remains vulnerable to incomplete foreign-exchange reform, lower remittances, higher fuel prices, conflict-related disruptions and delays in debt restructuring.
Overall outlook
Ethiopia’s outlook has improved markedly since the launch of the reform programme, with strong growth, falling inflation, rising reserves and progress on debt restructuring. However, the reform process remains delicate. The main challenge is to preserve macroeconomic stability while ensuring that reforms produce visible gains in jobs, incomes and poverty reduction. Sustained progress will depend on completing foreign-exchange reform, improving the business climate, resolving debt negotiations, strengthening revenue mobilisation and protecting poor households from reform-related price pressures.
Sources:
World Bank, Ethiopia Macro Poverty Outlook, April 2026.
International Monetary Fund, Ethiopia: Fourth Review Under the Extended Credit Facility Arrangement, January 2026.
International Monetary Fund, World Economic Outlook, April 2026.
African Development Bank, Ethiopia Economic Outlook, 2026.
National Bank of Ethiopia, Monetary Policy and Inflation Developments, 2025–2026.
