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Home to an estimated 124 million people, Ethiopia is the second most populous nation in Africa and one of the fastest-growing economies in the region, with an estimated 6.4% growth rate in FY2021/22. Ethiopia had previously enjoyed annual growth of nearly 10% per year over a 15-year period until 2019, driven by a state-led model involving large public investments in agriculture, enabling infrastructure, and manufacturing. Public investments averaged over 15% of GDP over that time and were financed by external debt and by domestic and diaspora savings. GDP growth slowed beginning in 2019 to around 6% per year due to multiple shocks, including COVID-19, a series of failed rains in the country’s lowlands, and conflict, particularly the severe fighting in the country’s North in 2020-2022. With inflation running at over 30% for more than two years, a high risk of debt distress, limited reserves, and an overvalued local currency, Ethiopia faces significant macroeconomic challenges. The consistently high economic growth until 2019 resulted in overall positive poverty reduction trends in urban and rural areas. The share of the population living below the national poverty line decreased from 30% in 2011 to 24% in 2016, and human development indicators also improved. However, gains are modest when compared to other countries that saw fast growth, and inequality has increased in recent years. The multiple shocks since 2019 have stalled progress on poverty reduction, negatively impacted human capital, and sharply increased food insecurity. Over 20 million people are now estimated to need humanitarian assistance. The government has embarked on reforms to transition from a state-led model to a facilitating a more private-sector driven approach. It launched a Home-Grown Economic Reform Agenda in 2019 and a HGER Agenda 2.0 in 2023-4, signalling that it will follow through with deep reforms to address macroeconomic distortions and drive growth. The government has also formulated a 10-year Development Plan for 2029/30. The plan aims to foster efficiency and introduce competition in key growth-enabling sectors (including energy, logistics, and telecoms) and improve the business climate. The World Bank Group’s strategic focus is to assist Ethiopia in forging a more inclusive and sustainable growth path, supporting the objectives of the Home-Grown Economic Reform Agenda and the 10-Year Development Plan. The WBG’s wide-ranging engagement in Ethiopia’s reforms and development is underpinned by a national portfolio of 34 operations totaling US$14B in commitments together with 12 Ethiopia components of regional operations totaling US$2.6B in commitments.
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