- Basic data
- Public finances and the state budget
- Banking system
- Tax System
Ethiopia’s economy continues to liberalize gradually, with debt sustainability and strengthening hard currency reserves as priorities. Economic transformation and reform efforts are supported by loans from the IMF, although the three-year Extended Credit Facility ended in September 2021. Ethiopia’s GDP growth has averaged 10% annually in recent years, the coronavirus pandemic and the adverse political-security situation have led to a drop in GDP growth to 2.0 % in 2021, but in the following years there should be a gradual strengthening of the economy and a return to annual growth of around 5%. In addition to agriculture (weakening of the effects of the locust invasion, higher world food prices), other sectors (industry, mining, and financial and banking services) should be the drivers of growth. Ethiopia faces persistent inflationary pressures due to the gradual devaluation of the Ethiopian Birr, reduction of government fuel subsidies and other liberalization steps. At the turn of 2021 and 2022, inflation hovered around 25%. Despite gradually increasing exports, the balance of the trade balance reached USD 10 billion in 2021 due to rising commodity and food prices on global markets. Check ebizdir for economical facts of Ethiopia.
The main sources of GDP in 2019 were:
Services: 38.6% (the driver of economic growth in Ethiopia, mainly telecommunications, tourism and the state-owned Ethiopian Airlines)
Agriculture: 33.3% (down 2% from the previous year despite the sector growing by 4% during the year)
Industry: 28.1% (compared to the previous year there was an increase of approx. 5%, the sector itself grew by approx. 13%, mainly thanks to the construction industry)
|GDP growth (%)||8.4||2.3||2||3.3||4.8|
|Export of goods (billion USD)||3.1||2.6||4.2||4.7||5.7|
|Import of goods (billion USD)||17.4||14.5||15.7||15.8||16.3|
|Trade Balance (Billion USD)||-12.6||-8.5||-10||-9.5||-8.9|
|Industrial production (% change)||ON||ON||ON||ON||ON|
|OECD export risk||7/7||7/7||7/7||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-4.8|
|Public debt (% of GDP)||70|
|Current account balance (billion USD)||-5.6|
|AFTER||10 – 35% depending on the amount of income|
|F.O||10 – 35% depending on the amount of income|
The conflict in the Tigray region, together with increased spending related to the global pandemic and election preparations, contributed to a higher state budget deficit in the 2020/2021 financial year. A similar trend continues in the financial year 2021/2022; the budget is burdened mainly by the ongoing expenditure on the war conflict, reconstruction programs and increasing expenditure on the import of commodities and petroleum products. In connection with government policies aimed at increasing the standard of living and investments in large infrastructure projects, government spending can be expected at the level of about 17% of GDP in the coming years.
The revenues of the state budget in the coming years count on the start of electricity production at the GERD dam, which should bring new funds to the state budget thanks to exports and economic expansion in the country. The sale of telecommunications licenses and the partial privatization of state-owned enterprises such as Ethiopian Airlines and Ethio Telecom, which was suspended in spring 2022, will lead to an increase in state budget revenues. The state budget deficit should oscillate around 5% of GDP in the coming years. The deficit will be financed primarily through bilateral loans (mainly from China) and domestic creditors. In the coming years, the public debt should fall to 66.5% in 2023. The current account balance will also hover around the USD 6 billion mark in the next period.
The Ethiopian banking system consists of the central bank (National Bank of Ethiopia, NBE), the state-owned Development Bank of Ethiopia (DBE), the state-owned Commercial Bank of Ethiopia (CBE), and private banks. According to the applicable laws, foreign banks cannot provide banking and financial services in Ethiopia.
The sector is dominated by state-owned commercial bank CBE, which controls 61% of the loan market and receives 57% of all bank deposits in the country. Its share of profit in the banking sector is 45.2%.
Banking services are currently concentrated in the capital, where more than a third of bank branches are located. Commercial banks copy the CBE model and are criticized by experts for non-existent innovation and the absence of efforts to expand the portfolio of services they offer.
At first glance, the Ethiopian tax system is relatively clear and stable, but its problem is low efficiency and arbitrariness in application and enforcement, which the private sector has been complaining about for a long time.
For legal entities with a monthly income of up to 7,200 ETB/month (according to the exchange rate as of 4/7/2022, this income corresponds to approx. EUR 128) the rate is zero. Furthermore, the system is progressive with a tax burden of 10-35%. The highest rate is applied to incomes above 130,800 ETB/month (2,330 EUR). Profit tax is 30%, a reduced rate of 25% can be applied by large mining companies.
For natural persons with an income of up to 600 ETB/month (approx. EUR 12) the rate is 0%, the lowest rate is at the level of 10% of the income and for the highest category that earns more than 10,900 ETB/month (approx. EUR 194) rate of 35%.
VAT is applied to most goods at a rate of 15%. There is a zero rate on some basic foods (bakery, milk, etc.).