In its newly proposed 2025/26 fiscal framework, the Ethiopian government has projected an 8.9% real GDP growth rate a figure that, at first glance, signals confidence, recovery, and ambition. But as analysts unpack the fundamentals behind this number, one question becomes unavoidable: is this optimism grounded in credible assumptions or is it a political message dressed as economic forecasting?
Ethiopia has a history of defying odds. From double-digit growth during the 2010s to its aggressive infrastructure investments, the country has often outperformed expectations. Yet today’s macroeconomic reality is very different. Foreign reserves are thin, inflation is stubbornly high, and access to concessional financing is weakening. In this context, a nearly 9% growth forecast demands scrutiny. ** Growth vs. Ground Truth** The stated growth drivers agriculture, services, and industrial recovery are plausible on paper. Rainfall has improved in some regions, peace has returned to key trade corridors, and construction activity is rebounding. But these gains remain uneven and vulnerable to climate shocks, supply chain bottlenecks, and FX constraints.
Private sector sentiment remains cautious, weighed down by liquidity shortages, rising input costs, and weak consumer demand. The export sector continues to underperform in non-traditional goods, while remittance flows have slowed due to diaspora fatigue and informal channel leakage.
Financing Growth Without Fuel A critical question is how such ambitious growth will be financed. Public investment, once a key engine of expansion, is now constrained by debt limits and shrinking aid flows. The government is relying more heavily on domestic borrowing and central bank advances raising concerns over inflation and crowding out of private credit.
Moreover, foreign direct investment remains tepid. Announcements around telecom, logistics, and banking liberalization have not translated into meaningful inflows. Without strong external capital, the investment-led growth model that underpinned Ethiopia’s past success looks increasingly unsustainable. ** Inflation: The Unacknowledged Obstacle** Consumer inflation remains above 20%, eroding purchasing power and confidence. The IMF has cautioned that unless price stability improves, monetary and fiscal levers will remain constrained. High inflation also distorts real GDP growth figures, often inflating nominal growth while undercutting real economic welfare.
Navigating Between Realism and Aspiration Growth targets serve more than just budget planning they shape investor perceptions, credit ratings, and domestic political expectations. If they are seen as detached from reality, they undermine credibility rather than build confidence.
Policymakers must ground forecasts in conservative baselines, paired with contingency scenarios and detailed sectoral assumptions. At a time of global volatility and domestic reform uncertainty, bold targets must be backed by bold reforms not just wishful accounting.
Conclusion Ethiopia’s ambition is not misplaced but its economic forecasting must be rooted in measurable progress, not political projection. Setting realistic targets, communicating transparently, and executing credible reforms will do far more to revive investor trust and public confidence than inflated growth promises.