Ethiopia plans to increase government spending in the next fiscal year, largely due to costs linked to the conflict involving Iran and its impact on global energy markets, Finance Minister Ahmed Shide said Thursday.
Presenting the government’s budget to parliament, Ahmed said total expenditure for the 2026/27 fiscal year, which begins next month, is projected at about 2.34 trillion birr (US14.69 billion), up from 1.92 trillion birr in the current fiscal year.
“The increase in expenditure mainly takes into account costs associated with the Middle East crisis,” Ahmed told lawmakers.
While he did not provide a detailed breakdown of the additional spending, the government has increased fuel subsidies in response to higher energy prices triggered by the conflict. Like many countries in Africa, Ethiopia relies heavily on imported fuel, making it vulnerable to global oil price shocks.
The planned spending increase comes as Ethiopia seeks to maintain strong economic growth while managing debt challenges and external pressures.
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According to the finance minister, the government expects the budget deficit to narrow to 1.4 percent of gross domestic product (GDP) in the next fiscal year. That compares with a deficit forecast of 2.2 percent of GDP for the current fiscal year.
The lower projected deficit suggests authorities are aiming to maintain fiscal discipline despite higher expenditure needs.
Ethiopia also expects economic growth to remain robust. The government forecasts GDP growth of 10.1 percent in the coming fiscal year, broadly unchanged from growth recorded this year.
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The East African nation has been pursuing economic reforms aimed at boosting investment, increasing exports and stabilising public finances. The government has also sought support from international financial institutions as it works to address debt vulnerabilities and strengthen foreign exchange reserves.
Export earnings remain a key focus for policymakers and investors.
Ahmed said export revenues reached $8.7 billion during the first 10 months of the current fiscal year. The government expects total export earnings to rise to $10.5 billion by the end of the year.
The figures are being closely watched by international investors because they play a central role in ongoing disputes over Ethiopia’s debt sustainability.
The country defaulted on its sole international bond in late 2023 and has since been engaged in debt restructuring negotiations with external creditors under the G20 Common Framework.
A major point of contention has been whether Ethiopia faces a long-term insolvency problem or a temporary liquidity challenge.
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The distinction is significant because it influences the extent of debt relief creditors may be required to provide.
Talks with holders of Ethiopia’s US$1 billion Eurobond suffered another setback last month when bondholders rejected the government’s latest restructuring proposal.
The rejection highlighted continuing disagreements between the two sides over the country’s economic outlook and debt repayment capacity.
Some bondholders have indicated they are considering legal action as negotiations remain unresolved.
Despite the difficulties, Ahmed expressed optimism that progress is being made.
“Debt restructuring negotiations, including with Eurobond creditors, are currently underway, and we are close to reaching an agreement with some of them,” he told parliament.
The government hopes that successful debt restructuring will ease pressure on public finances and help restore investor confidence at a time when the country is seeking to attract greater foreign investment.
Analysts say Ethiopia’s ability to sustain export growth, secure debt relief and manage the impact of higher global energy prices will be crucial in determining the success of its economic reform programme.
For now, authorities are betting that strong growth and rising export earnings will help offset the fiscal pressures created by the conflict in the Middle East and broader global economic uncertainty.
