Ethiopia Economic Outlook

  • The strong growth of Ethiopia’s economy in 2014/15, estimated at 10.2%, is expected to continue in 2016 and 2017, while public investment is expected to ease infrastructure bottlenecks and bolster economic structural transformation.
  • Ethiopia faced severe drought in 2015 requiring emergency food and aid in 2016 and causing inflationary pressure, while the risk of public-debt distress increased due to rising non-concessional borrowing and export underperformance in 2014/15.
  • The urban population, growing at 3.8% per annum, is expected to reach 42.3 million by 2037, which could pose significant development challenges if not addressed.

Ethiopia has experienced double-digit economic growth, averaging 10.8% since 2005, which has mainly been underpinned by public-sector-led development. Real gross domestic product (GDP) is estimated to have grown by 10.2% in fiscal year 2014/15. The agriculture, services and industry sectors accounted for 38.8%, 46.6% and 15.2% of real GDP, respectively. Public investments are expected to continue driving growth in the short and medium term with huge investments in infrastructure and the development of industrial parks, prioritised to ease bottlenecks to structural transformation, which will still have to take shape with industry playing a significant role in the economy.

Fiscal policy has remained prudent, focused mainly on increasing spending on propoor and growth-enhancing sectors, and on boosting efforts in tax-revenue collection. The monetary-policy stance has been geared to ensure a stable exchange rate and single-digit inflation targets. Despite this, inflation has tended to rise from single digits and reached 10.1% in December 2015. Although Ethiopia has been pursuing a sound debt-management policy, debtburden indicators signalled a rise in debt distress from low to moderate in 2015, as indicated by the World Bank/International Monetary Fund (IMF) debt-sustainability analysis. Moreover, poor performance and volatility in export earnings, and ever-increasing demand for imports have led to a deterioration of the balance of trade deficit.

In 2015, Ethiopia faced one of the worst droughts in 30 years caused by the El Niño climate conditions, leading to failed harvests and shortages of livestock forage. Some 10.2 million persons have been affected by the drought and will need emergency food and non-food aid into 2016.

Ethiopia, the second most populated country in Africa after Nigeria, is also the least urbanised, with urbanisation at only 19%, significantly below the sub-Saharan average of 37%. The urban population has grown at an average 3.8% per annum since 2005 and is expected to triple from 15.2 million in 2012 to 42.3 million by 2037. This could pose a significant development challenge if not addressed. Since 2004/05, the government has focused more on developing housing, upgrading slums, providing infrastructure and promoting small urban enterprises.