Addis Ababa, June 2025 – In a significant fiscal milestone, the Council of Ministers of the Federal Democratic Republic of Ethiopia has approved a record-breaking ETB 2 trillion national budget for the fiscal year 2025/26 (2017 E.C.). This marks a 31% increase from the previous year’s budget of ETB 1.52 trillion and reflects the government’s ambitious agenda to accelerate economic recovery, strengthen public services, and deepen structural reform.
This bold fiscal expansion comes at a pivotal moment as Ethiopia continues to implement sweeping macroeconomic reforms under an International Monetary Fund (IMF)-supported program. The reform package includes the shift to a market-based foreign exchange regime, a comprehensive public debt restructuring process, and revenue-enhancing tax reforms aimed at reducing fiscal deficits and boosting domestic resource mobilization.
Key Budget Priorities: Security, Economic Recovery, and Social Protection
One of the central priorities of the 2025/26 budget is safeguarding national security and ensuring regional stability. A significant portion of the budget will be allocated to peace-building initiatives, law enforcement strengthening, and post-conflict stabilization efforts. This is particularly important for communities recovering from recent conflicts, where the government is working to rebuild public trust and restore essential services.
Another major focus area is enhancing production and productivity across key economic sectors. The government plans to inject substantial funding into agriculture, manufacturing, energy, and infrastructure. These investments are expected to create jobs, stimulate value-added production, and support national recovery following the impacts of the COVID-19 pandemic and regional disruptions. Key initiatives include expanding industrial parks, developing irrigation systems, and supporting micro and small enterprises (MSEs) through improved access to finance, training, and technology.
The budget also places strong emphasis on social protection and disaster response. In light of ongoing droughts and humanitarian crises, the government will intensify its support to health, education, water, and food security programs—especially in vulnerable regions. Notably, the government has established a Disaster Risk Management Fund, which will be partially financed by a new employee solidarity tax levied on both public and private sector workers. This aims to reduce reliance on foreign humanitarian aid and establish a sustainable, domestically funded emergency response system.
Fiscal Breakdown and Economic Outlook
The newly approved budget allocates:
- ETB 540 billion for capital expenditure, supporting large-scale infrastructure projects such as roads, energy generation, irrigation, and housing.
- ETB 870 billion for recurrent expenditure, covering government operations, public sector salaries, pensions, and subsidies.
- ETB 400 billion in subsidies to regional governments to strengthen decentralized service delivery and support regional development priorities.
The projected budget deficit for the year stands at 2.2% of GDP, to be financed through a mix of domestic borrowing, concessional external loans, and development partner grants, in line with Ethiopia’s medium-term fiscal framework.
Alignment with Economic Reform Agenda
The 2025/26 budget is strategically aligned with Ethiopia’s broader economic reform agenda. Under the IMF-supported program, the government has already initiated major policy changes, including:
- The liberalization of the foreign exchange market in July 2024, allowing the birr to be determined by market forces.
- The introduction of tax reform measures, such as restructuring VAT, revising the presumptive tax regime for small businesses, and broadening the tax base.
- Ongoing negotiations under the G20 Common Framework for Debt Treatment, seeking debt relief and restructuring to ensure fiscal sustainability.
These reforms aim to stabilize the macroeconomic environment, enhance investor confidence, and lay the groundwork for inclusive, private-sector-driven growth.