Ethiopia: An Economy under Reconstruction

Since mid-2024, Ethiopia’s economy has been gradually emerging from crisis, supported by the implementation of an IMF-backed reform program. Focused on exchange rate liberalization, fiscal consolidation, and debt restructuring, these reforms have led to a rapid improvement in macroeconomic fundamentals, further strengthened by favorable external factors. However, several challenges and vulnerabilities remain, and the economy still has limited buffers to withstand potential shocks, whether economic, climatic, or security-related. The heavy reliance of external balances on the strong performance of gold exports constitutes a source of fragility for the country. In addition, weak public revenues constrain investment capacity and the financing of social policies. Ongoing domestic and regional security tensions, along with climate and biodiversity-related vulnerabilities, constitute additional structural risks. While the reforms have helped restore short-term macroeconomic balance, challenges related to economic diversification, fiscal sustainability, and resilience to shocks remain central to placing Ethiopia on a sustainable development path.