Ethiopia’s Public Debt Could Exceed 60% of GDP, Economic Study Projects

November 13, 2026 | By Semahegn Nigatu

Ethiopia’s public debt-to-GDP ratio could exceed 60 percent within the next three years, placing the country under further debt-sustainability pressure, according to a new macroeconomic study by the Ethiopian Economics Association (EEA).

The report, Ethiopia’s Macroeconomic Performance and Outlook, projects that the country’s overall public debt relative to GDP, government revenue and tax revenue will continue to rise. It says the projected debt-to-GDP ratio would exceed the threshold the study associates with debt sustainability for low-income countries.

The forecast is based on an autoregressive integrated moving average (ARIMA) model. The researchers say they controlled for major historical shocks, including the 1998–2000 Ethio-Eritrean war, the 2003 drought, the 2008 global financial crisis, the 2018 political transition, the Covid-19 pandemic and the 2020–2022 civil war.

The study’s fiscal outlook for the coming three years also points to continued pressure from the composition of government expenditure. Recurrent spending is expected to account for the dominant share of public expenditure, limiting the resources available for long-term investment.

Although the report projects a decline in the overall budget deficit and the primary budget deficit relative to GDP, it warns that the debt burden will continue to increase. It identifies the rising ratios of external debt to GDP, government revenue and tax revenue as particular sources of concern because of the exchange-rate risks associated with foreign-currency obligations.

The study also finds that Ethiopia’s external debt-service-to-export ratio exceeds the threshold applied to countries with high debt-carrying capacity, despite the country being classified as having low debt-carrying capacity. The finding points to pressure on the foreign exchange earnings available to meet external obligations.

Weak domestic revenue mobilisation is another constraint identified in the report. Ethiopia’s tax-to-GDP ratio has remained below 10% since 2018, according to the study, limiting the government’s ability to finance expenditure from domestic resources.

The report also raises concerns about the composition of tax revenue, noting that the government relies heavily on indirect taxes. Such a structure can place a disproportionate burden on lower-income households, which tend to spend a larger share of their income on consumption.

The researchers identify security and political uncertainty as risks to the fiscal outlook, partly because they could weaken tax collection and lead to greater allocations for recurrent expenditure at the expense of development investment.

External financing conditions could add to the pressure. The study cites shrinking access to concessional loans and higher external borrowing costs among the risks facing public finances. It also points to rising import costs for subsidised strategic inputs, including fuel and fertiliser, as a potential source of additional fiscal pressure.

To improve debt sustainability, the report recommends strengthening domestic revenue mobilisation, improving public spending efficiency and prioritising capital expenditure over recurrent spending. It also identifies public-private partnerships and blended financing as potential sources of investment funding.

The report examines Ethiopia’s macroeconomic performance from 1993 to 2025 and provides projections for key indicators. Its fiscal forecasts cover the coming three years and form part of a wider assessment of the country’s economic outlook.

Source: FSX Business News