As the second Homegrown Economic Reform is set to conclude this fiscal year, the Ministry of Planning and Development (MoPD) has outlined Ethiopia's 2025/26 fiscal year economic outlook projecting a nine percent growth rate, the highest in recent years. The yearly economic outlook, which forecasts this high rate of growth, nonetheless faces both local and international challenges.
The outlook document, unveiled during MoPD's discussion with its affiliated institutions, indicated that the second Homegrown Economic Reform will be driven primarily by long-awaited mega-projects, including the Abbay Dam and Ethiopia's first fuel-producing plant.
The Abbay Dam's full operation, positioned at the heart of the government's economic ambitions for the fiscal year, is expected to significantly boost the nation's power supply. Together with the already operational Assela Wind Farm, these infrastructure development projects are expected to address Ethiopia's growing energy demand, MoPD's State Minister Trumar Abate stated.
Similarly, the domestic fuel production plant, whose inauguration is slated for this September, is expected to ease the country's overdependence on imported refined petroleum. "Ethiopia currently pays 10-15 USD more per barrel for Brent crude than the global average, a cost that has tested its trade balance and weakened currency market stability," MoPD's Advisor Tsadkan Alemayehu noted.
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Strategic plans outlined in the outlook prioritize import substitution, enhanced productivity, and sector-specific growth. According to the Advisor, agriculture, manufacturing, mining, tourism, and services are expected to surpass last year's performance, with better public-private partnerships.
Infrastructure development has also been identified as a key pillar of macroeconomic policy implementation this fiscal year. "Last fiscal year, the government was successful in avoiding a credit from the central bank to fill budget deficit. It was for the first time in years, showing improved efficiency and better revenue collection," Tsadkan said.
With projected revenue of over 2.7 trillion Birr--34 percent higher than last year's performance, the government plans to cover more of its budget through domestic sources. Notably, 334 billion Birr is projected to be generated from tax revenues alone. This includes a 17.4 billion Birr dividend from state-owned enterprises, representing a 20 percent increase over the income secured last year, Tsadkan stated.
Amid these optimistic plans, the outlook highlights growing external and structural economic risks. Ethiopia remains reliant on imports for essential commodities like fertilizer, iron, and aluminum, which are critical inputs for agriculture and construction.
Rising global fertilizer prices, ongoing unstable tariff barriers from developed countries like the US, and geopolitical instability might pose risks to achieving the planned production and export competitiveness, the Advisor cautioned.
Meanwhile, the global economy, projected to grow by 2.8 percent, presents limited external demand growth and fuels financial uncertainties for developing countries like Ethiopia, according to him.
Even so, the government expects significant improvement in foreign exchange earnings. "Ethiopia's commodity export revenue is projected to grow to 9.3 billion USD, with 3 billion expected from coffee and 3.58 billion from gold," Tsadkan indicated.
An improved global market and robust local production are also predicted. Coffee production alone, which is expected to grow by 20 percent, is another contributor to the projected export earnings. The Advisor, however, indicated that the manufacturing sector remains the weakest contributor to exports, showcasing unresolved structural imbalances undermining export diversification efforts.
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Remittances, as indicated in the outlook, are also showing encouraging signs, with earnings expected to reach 7.6 billion USD this year, surpassing last year's 6.9 billion USD revenues. The service sector, another major contributor of foreign exchange to the national economy, is anticipated to generate 8.9 billion USD--up from 8.1 billion USD registered last fiscal year.
Economic success stories of the past fiscal year point to a more resilient and stable flow of foreign currency, importantly supporting forex market stabilization efforts, Tsadkan said.
Considering these developments, creditors are showing good faith in negotiating Ethiopia's debt restructuring. This offers relief for long-term investment. Moreover, the "Let Ethiopia Produce" initiative, focused on revolutionizing domestic manufacturing and substituting imports, is also progressing with stronger implementation capabilities across industries.
