Ethiopia’s economy is expected to expand by 10.2 percent in the 2025–26 fiscal year, Prime Minister Abiy Ahmed said on Tuesday, raising the government’s growth outlook amid signs of stronger-than-expected performance across key sectors.
The revised forecast is higher than the 8.9 percent growth projection issued by the Ministry of Finance in June, reflecting what the prime minister described as improved economic momentum in the first half of the fiscal year.
“Based on a review of the growth performance over the past six months of the current fiscal year, the plan has been revised to project that Ethiopia will record 10.2 percent growth by the end of the year,” Abiy told lawmakers during a parliamentary address.
Ethiopia’s fiscal year runs from July 8, 2025, to July 7, 2026.
The upward revision comes as Africa’s second-most populous country presses ahead with economic reforms aimed at stabilising growth, easing foreign exchange shortages and attracting private investment following years of conflict, drought and macroeconomic stress.
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While Abiy did not provide a detailed sectoral breakdown, officials have previously pointed to agriculture, manufacturing, construction and services as key drivers of recent growth. Public investment in infrastructure, combined with a recovery in agricultural output after improved rainfall, has also supported economic activity.
Ethiopia has in recent years pursued wide-ranging reforms under a homegrown economic reform programme, including measures to liberalise key sectors, restructure state-owned enterprises and improve public finances. The government has also been in talks with international creditors and lenders to address debt pressures and restore access to external financing.
In late 2023, Ethiopia defaulted on part of its external debt, underscoring the severity of its balance-of-payments challenges. Since then, authorities have sought to stabilise the economy through policy adjustments, including tighter monetary policy and steps toward greater exchange rate flexibility.
Inflation remains a key concern, though officials say price pressures have eased compared with previous years. Ethiopia has struggled with high food inflation, driven by supply constraints, climate shocks and currency weakness.
The International Monetary Fund and World Bank have both highlighted Ethiopia’s growth potential but have stressed the importance of sustained reforms, fiscal discipline and private-sector development to ensure that growth translates into broad-based job creation and poverty reduction.
Analysts say the revised growth forecast signals confidence by the government but caution that risks remain. These include ongoing security concerns in some regions, climate-related shocks affecting agriculture, and constraints linked to foreign currency availability.
Ethiopia’s economy has historically been one of the fastest growing in Africa, often recording annual growth rates above 8% over the past decade, largely driven by public investment and a rapidly expanding population. However, critics have questioned the sustainability of this model, pointing to rising debt levels and limited export earnings.
The government has said it aims to rebalance growth toward the private sector, expand exports and promote industrialisation, particularly through industrial parks and manufacturing zones focused on textiles, agro-processing and light manufacturing.
Foreign direct investment remains an important pillar of Ethiopia’s strategy, with authorities seeking to attract capital from Asia, the Middle East and Europe. Recent reforms allowing greater private participation in sectors such as telecoms and logistics are part of this push.
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Abiy’s government has also emphasised regional integration and trade, including efforts to improve transport links and logistics infrastructure to support exports.
Whether Ethiopia achieves the revised 10.2 percent growth target will depend on continued reform implementation, stable macroeconomic conditions and an improved external environment, economists say.
For now, the government’s upgraded outlook reflects optimism that the economy is regaining momentum after several challenging years, even as structural vulnerabilities continue to pose risks to sustained long-term growth.
