The African Development Bank’s new medium-term review of the strategy reveals that the country has received less than half of the development financing envisaged under the African Development Bank’s Country Strategy Paper (CSP) for 2023-2027, even as it grapples with easing but still high inflation, weak domestic revenues, structural employment challenges and widespread poverty.
Only US$538.8 million in financing has been approved for Ethiopia between 2023 and 2025, far below the original investment pipeline of US$1.114 billion, according to an interim assessment of a strategy document released by the African Development Bank (AfDB) this week.
This shortfall occurred despite CSP’s goal to support Ethiopia’s economic transformation and infrastructure development under two priority areas, including improved economic governance and quality infrastructure to support agro-industrialization.
According to the document, the main cause of the funding shortfall was a reduction in allocations from the African Development Fund and the failure of some planned private projects to materialize.
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Despite the reduction in funding scope, the projects approved so far are mainly concentrated in infrastructure sectors such as energy, agriculture, transport and governance, the World Bank reported.
The medium-term assessment shows that despite changes in budgetary targets, Ethiopia’s financial situation has seen significant activity from 2024 to 2025. Trade finance guarantees were approved for two major non-sovereign operations (NSOs), namely Dashen Bank and Awash Bank, totaling $90 million.
On the development front, Ethiopia’s performance-based allocation from the African Development Fund amounted to USD 297.95 million. Although this figure is lower than the USD 532.5 million originally projected for the period 2023-2025, aggressive resource mobilization widened the gap further.
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According to the document, approximately US$523.24 million was utilized through a diverse collaboration of bilateral partners and specialized trust funds, including the Dutch and South Korean EXIMs.
This review shows that despite signs of improving inflation, Ethiopia’s macroeconomic situation remains tense.
According to the report’s executive summary, inflation reached 26.6% at the peak of recent economic pressures, but has since declined as fiscal consolidation and stabilization measures have been implemented.
The report links the initial inflation spike to macroeconomic imbalances, war-related spending, and disruptions in external financing during the conflict.
“The fiscal deficit peaked at 4.0% of GDP in 2021/22 due to increased military spending and the suspension of subsidies due to the Tigray civil war, but fell to 3.0% of GDP in 2023/24 and 1.6% of GDP in 2024/25 due to peace dividends and fiscal consolidation policies,” the report says.
The bank also reported that gross national income (GNI) per capita was USD 1,144, and growth remains strong, although it has slowed slightly since 2019, mainly due to increasing macroeconomic imbalances. The real GDP growth rate from 2022 to 2024 was high at 7.2%, mainly driven by services on the supply side and personal consumption on the demand side.
Although inflation has eased from its peak levels, macroeconomic pressures continue due to the economy’s structural weaknesses, the AfDB said.
Beyond macroeconomic indicators, this review highlights the slow pace of structural transformation in the Ethiopian economy.
The bank notes that Ethiopia continues to struggle with limited diversification, weak competitiveness and insufficient integration into global markets.
According to the report, fundamental development challenges continue to include large infrastructure deficits and the private sector being constrained by weaknesses in economic governance, particularly in the regulatory environment, limited access to finance, and severe skills mismatches among young people seeking work. External shocks and conflicts disrupt these challenges.
In this context, one of the most pressing concerns highlighted in the report is the problem of youth unemployment in Ethiopia.
The document warns that millions of young people entering the workforce each year face limited employment opportunities.
“More than two million young people enter the labor market every year, making youth unemployment a major concern as it has the potential to cause social upheaval,” the report said.
The youth unemployment rate is currently 23.1 percent, nearly three times higher than the national unemployment rate of about 8 percent.
The AfDB attributes this problem to several structural factors, including skills mismatches, a weak private sector, and limited economic diversification.
“Despite the need for a conducive environment for private investment and enterprise development, a policy shift towards private sector-led growth as the main driver of job creation is also being implemented. A vibrant private sector is therefore needed to sustainably solve the problem of youth unemployment in Ethiopia,” the document reads.
The study also found that despite years of strong economic growth, poverty continues to affect the majority of the population.
According to the 2024 Multidimensional Poverty Index cited in the report, 68.7 percent of Ethiopians are considered multidimensionally poor, reflecting widespread poverty in areas such as education, health, and living standards.
The report notes that poverty intensity is estimated at 53.3 percent, indicating that those classified as poor experience multiple and overlapping poverty.
“Malnutrition, child mortality and limited access to basic services are the main factors contributing to the high MPI,” the document states.
The government’s Ten Year Development Plan (TYDP) aims to significantly reduce poverty by 2026, but the AfDB warns that ongoing conflict and political instability are slowing progress in delivering essential services.
Despite these challenges, Ethiopia remains one of Africa’s largest economies and continues to record relatively strong growth.
The AfDB report lists the country as Africa’s ninth largest economy, but it remains a low-income country with limited industrial transformation.
