Fast Growth, Few Jobs and Stubborn Prices

The Ethiopian Economics Association’s first Macroeconomic Outlook says GDP will keep growing above 9% a year. It also expects double-digit inflation through 2030, public debt above 60% of GDP, and a trade gap that keeps getting wider.

For the past two decades Ethiopia has been one of the fastest-growing economies in Africa. The Ethiopian Economics Association (EEA) has now published its first Macroeconomic Outlook. The report was written by senior researchers Dr. Mezid N. Keraga and Dr. Jeleta G. Kebede and reviewed at the Association’s 23rd International Conference in July. It finds that the growth record still holds, and that very little else in the economy is keeping pace with it.

The report covers 1993 to 2025 and splits that period into policy eras: the post-command transition, state-led growth, the devaluation years, and the market-liberalization period since 2018. It forecasts growth, inflation, fiscal balances, debt and trade. Its conclusion is that headline growth is solid while employment, prices, public finances and exports all point to the same structural weaknesses.

Growth that doesn’t hire

The forecast itself is strong. The EEA’s ARIMA model controls for the 1998–2000 war, the 2003 drought, the global financial crisis, the 2018 political transition, COVID-19 and the 2020–2022 civil war, and it still projects real growth above 9% a year for the next three years. Industry drives most of it, and the authors attribute industry’s rising share to the recent boom in mining. Agriculture’s share of GDP is forecast to keep shrinking, and services’ share falls slightly.

Employment is where the report’s concerns begin. The authors calculate the employment elasticity of growth, meaning how much employment rises for each 1% of output growth, and they find it low.

Agriculture produces a shrinking share of output but still employs most Ethiopians. Its elasticity of 0.04 means output growth there adds almost no jobs. Industry is in the opposite position. Its share of GDP has grown about 4% a year since 2001 while its share of employment has fallen slightly, so it produces more with fewer workers. That is good for productivity and bad for job creation. Services absorb the most labour, but the report notes that their employment share is growing faster than their output share. The authors read this as a sign that many workers are moving into informal, low-productivity service jobs and not into modern firms.

A shift-share breakdown supports the same reading. Between 2001 and 2025, employment grew about 2.75% a year. Only 0.08 points of that came from workers moving into more productive sectors. Nearly all of it came from expansion within existing sectors. The structural contribution peaked during GTP I and GTP II and has been close to zero under the Home-Grown Economic Reform (HGER) era.

Ethiopia has outgrown many of its African peers but lags them in creating jobs.

The authors list the downside risks to their growth forecast: insecurity at home and in the region, a weaker global economy, higher prices for imported fuel and fertilizer, and urban unemployment above the national rate. On the upside, they point to tourism (if security improves) and further growth in mining.

Inflation that won’t come down

The monetary chapter says the clearest driver of Ethiopian inflation is money. The authors estimate an ARDL model on 1993–2025 data. It finds a strong long-run link: each 1% increase in broad money adds about 1.55 percentage points to headline inflation. The same model finds no statistically significant effect of the nominal effective exchange rate (NEER) on overall inflation.

That second finding stands out after July 2024. When the birr was floated, the real effective exchange rate fell by about 38% in a single quarter. The report says the pass-through has been slow and runs mostly through non-food prices, which have mattered more since 2020. Food still accounts for most of the CPI.

The authors then run the model forward under four scenarios to 2030.

In the baseline, money keeps growing at its historical pace and the birr keeps depreciating at its trend rate. Inflation eases only slightly, from 16.5% in 2026 to 14.9% in 2030. The authors say that on the current policy stance, single-digit inflation is out of reach in the medium term. An extra 5% shock to money supply (Scenario 1) holds inflation near 22% for the whole period.

The model does not match official data for 2025. It estimates inflation that year at 28.5%, while the Ethiopian Statistics Service reported 13.9%. The authors treat the official 2025 figure as an outlier and argue that their estimate better reflects the fundamentals. Readers should know this before comparing the forecasts with official statistics, because every scenario starts from the model’s higher estimate.

The report says the reason inflation stays high is fiscal dominance. Before 2021, government borrowing from the banking system moved against the cycle. After 2020, the authors find that credit to government surged while private-sector credit was capped at 14% in 2023. They conclude that conflict-related spending was financed by monetizing debt. Nominal interest-rate ceilings combined with high inflation kept real interest rates negative. That penalized savers and pushed credit to less efficient uses.

A policy simulation in the report illustrates the point. The model keeps money and the exchange rate on their baseline paths but restores the pre-2017 regulatory and fiscal framework. In that case, forecast inflation falls from 28.5% to about 1% by 2030. This is a hypothetical exercise, not a forecast. The authors use it to argue that recent policy and institutional changes, more than market forces, explain the current inflation.

A thin wallet and growing debt

The fiscal chapter shows a state with little revenue. Government revenue was between 10% and 20% of GDP from 2000 to 2020. Since 2020 it has been below 10%, with a low of about 7.5% in 2024. Tax revenue has been below 10% of GDP since 2018 and was around 7% in 2024. That is far below the 15% the IMF considers the minimum for a low-income country to fund basic state functions and service its debt. The report also cites estimates that Ethiopia collects only about half of its potential tax revenue.

Spending has gone down along with revenue. The budget deficit has dropped from more than 10% of GDP in the early 2000s to about 2.5%, which looks like discipline. The report says the composition of spending tells a different story. Recurrent spending now takes a growing share of the budget, capital investment a shrinking one, and education and health get a declining share of capital spending. Ethiopia also still runs a primary deficit, which means it cannot cover its current spending before any interest payments.

The authors are most concerned about debt. Public debt fell to about 35% of GDP in 2024 and then rose sharply in 2025. According to the report, all of that increase came from external debt, which now exceeds domestic debt, because of the devaluation. Domestic debt kept falling. This leaves the public balance sheet exposed to the exchange rate. The EEA forecasts that total debt will pass 60% of GDP within three years, above the sustainability threshold for low-income countries, and that debt will also keep rising relative to revenue and tax revenue.

Exports can’t keep up with imports

Nominal exports grew about 33% a year on average from 1993 to 2025, and imports about 24%. Exports still come from a small number of primary commodities. Since 2018, coffee has earned about $1.28 billion a year on average and gold about $701 million, with large swings in gold. The report’s data also show sharp declines in several other exports.

Leather is the clearest case. Export earnings from leather and leather products fell from $132.4 million in 2018 to $17.4 million in 2025. The number of working tanneries fell from 35 to 7 because of a shortage of raw hides. The report says the “Ethiopia Tamirt” industrial campaign did not stop the decline. AGOA also hurt manufacturers. Washington suspended Ethiopia’s duty-free access in January 2022. U.S.-bound exports, which peaked at $358.6 million in 2021, fell to $275.6 million by 2023. That is a direct loss of about $83 million, and it hit textile, apparel and leather firms in the industrial parks. Conflict in the main farming areas, together with falling world prices, cut sesame exports from 359,000 tons to 210,000 tons.

The report also argues that devaluation has not helped exports much. More than half of Ethiopia’s imports are intermediate or capital goods, and 52% of domestic manufacturing depends on foreign inputs. A weaker birr raises production costs almost immediately and cancels out the price advantage. The authors do see one benefit of narrowing the gap between the official and parallel rates. When that gap is small, firms have less reason to under-invoice, so more export earnings pass through official channels and recorded exports rise.

The trade outlook makes this worse. The EEA forecasts import growth steady at about 20.5% a year for 2026–2028, driven by demand for capital goods, industrial inputs and fuel. Export growth rises by 1.9 points in 2026 and then slows by about 3 points in each of the next two years. Because imports start from a much larger base, the dollar trade deficit is projected to widen, and pressure on foreign exchange is likely to continue.

What the economists recommend

The recommendations follow from the diagnosis:

1. Tighten money. Slow broad money growth below its historical average and raise nominal policy rates until real interest rates are positive again.
2. Finish forex reform. Fully unify the foreign-exchange market to close the parallel premium and remove the incentive for firms to cross-subsidize. Protect vulnerable households from the pass-through with targeted social support.
3. Collect more, invest more. Improve tax administration, transparency and compliance. Shift spending from recurrent items to capital investment, and give education and health a fair share of the capital budget.
4. Borrow more cheaply. Rely on concessional loans and public-private partnerships, not costly commercial debt.
5. Pursue job-rich industrial policy. Support labour-intensive manufacturing so that growth creates jobs.
6. Fix trade. Negotiate local-currency settlement and countertrade deals with China, India and the Gulf states. Seek restored AGOA access, expand trade through the GCC and AfCFTA, rebuild sesame supply routes, and support tanneries with forex priority, raw-hide incentives and duty drawbacks.

The report shows an economy that still grows fast and has the reforms of the last two years on its side. It also finds that growth depends on mining and public spending, that jobs are mostly informal, that inflation is fed by deficit financing, and that foreign exchange relies on coffee and gold. The authors argue that progress on employment, prices, debt and trade now matters more than the growth rate.