Ethiopia has announced a 21% increase in its 2025 budget, marking the first budget since defaulting on a Eurobond payment and committing to economic reform discussions with the International Monetary Fund (IMF).
The nation’s Finance Minister, Ahmed Shide, revealed the new budget details to lawmakers on Tuesday, outlining plans to spend 971.2 billion birr ($16.9 billion) in the fiscal year starting July 2024.
The increased budget reflects Ethiopia’s commitment to addressing its economic challenges head-on. Despite the heightened expenditure, the fiscal deficit is projected to remain stable at 2.1% of gross domestic product (GDP), unchanged from the current fiscal year.
Financing the Deficit
Minister Shide outlined a plan to cover the 358.5 billion-birr deficit through a combination of local and foreign borrowing.
The domestic borrowing component will be managed via government treasury bills and medium-term bonds. Shide emphasized that until substantial external donor support is secured, Ethiopia will continue to rely heavily on its domestic markets to finance budget deficits.
“While the government has secured some external financing from the World Bank and the European Union, negotiating an IMF program will be crucial to alleviate pressure on local banks and secure overall debt relief,” said Giulia Filocca, a senior analyst at Standard & Poor’s for sovereign and international public finance ratings.
IMF Program and Economic Reforms
An agreement with the IMF is seen as a pivotal step for Ethiopia. The nation failed to remit a $33 million coupon payment for its $1 billion bond in December 2023, leading to agreements with some creditors, including the Paris Club, to suspend debt repayments.
In exchange, Ethiopia is expected to reach a staff-level agreement with the IMF, which will likely include economic reforms such as devaluing the birr currency.
“Our expectation is that an IMF program will be signed this year, but the timeline remains unclear due to ongoing political developments and challenges over foreign-exchange reforms,” added Filocca.
Budget Highlights
The new budget includes 451.3 billion birr for recurrent spending, 283.2 billion birr for capital expenditure, and 236.7 billion birr allocated for regional subsidies.
The government projects income of 612.7 billion birr, with tax revenue expected to contribute 502 billion birr and non-tax income 61.6 billion birr. Sector budget support is anticipated to bring in 7.3 billion birr, with aid and grants expected to add 41.8 billion birr.
Economic Outlook
Ethiopia’s economy is forecasted to expand by 8.4% in the coming fiscal year, up from an expected 7.9% growth rate in the current period. The budget increase is designed to support this growth trajectory by enhancing public investment and stimulating economic activity.
“Our partnership with the IMF and other international financial institutions will be key to ensuring Ethiopia’s economic resilience and sustainable growth,” Minister Shide concluded. “We are committed to implementing the necessary reforms to secure a brighter economic future for our country.”
As Ethiopia navigates its economic challenges, the government’s proactive approach to increasing spending and engaging with the IMF reflects a strategic effort to restore fiscal stability and drive long-term economic development.
