Ethiopia anticipates a budget deficit of 2.1% of its gross domestic product (GDP) for the upcoming fiscal year, according to Finance Minister Ahmed Shide. This projection comes as the nation strives to recover from multiple economic challenges.
The Ethiopian economy has been significantly impacted by the COVID-19 pandemic, a two-year conflict in the Tigray region, and extreme weather conditions. These events have intensified existing issues such as high inflation and a shortage of foreign currency, leading to a debt default last December—the third such default among African nations in recent years.
Despite these hurdles, the government expects economic growth to rise to 8.4% in the next fiscal year, up from 7.9% this year. “Ethiopia has faced numerous social, economic, and political challenges recently, and various reforms have been implemented to address these issues,” Ahmed stated.
The government’s main objectives for the year include controlling inflation, addressing foreign exchange shortages, reducing debt to sustainable levels, and improving the balance of payments. The total budget for the 2024/25 fiscal year is set at 971.2 billion birr ($17 billion), a 21.1% increase from the previous year. Of this amount, 451.3 billion birr is allocated for recurrent expenditure, and 283.2 billion birr for capital expenditure. Revenue, including external assistance, is estimated at 612.7 billion birr.
Analysts suggest that Ethiopia may need to devalue its currency significantly to secure a rescue loan from the International Monetary Fund (IMF). The scarcity of hard currency and the controlled official exchange rate have led to a flourishing black market, where the birr trades at nearly double the official rate.
As Ethiopia continues its efforts to stabilize and grow its economy, the effectiveness of its policies and reforms will be crucial in overcoming current fiscal challenges and achieving sustainable growth.
photo source: Google
By: Montel Kamau
Serrari Financial Analyst
12th June, 2024
