Ethiopia Economic Forecast

Conflict in the northern Amhara region has disrupted economic activity in FY 2023 (July 2023–July 2024) to date, and it has escalated in recent weeks. In mid-August, Parliament ratified a state of emergency, which will remain in place until February 2024. In the wake of this, the federal military presence in the region has increased. Instability and harsh security measures in the area are likely to hamper trade, investment and agriculture, potentially igniting a food price rally, as Amhara accounts for a third of the country’s food production. Meanwhile, also in mid-August, the Central Bank loosened restrictions on the foreign exchange market: It increased the share of foreign currency that Ethiopian exporters can keep from 20% to 40%, thus incentivizing exports and making it easier to pay for imports with foreign currency.

Inflation came in at 28.2% in August, down from 28.8% in July. Inflation is set to average slightly below last calendar year’s level, but it will remain elevated amid the government’s gradual lifting of fuel subsidies. Risks, which are skewed to the upside, include an intensification of the conflict in the north and the El Niño weather phenomenon stoking food prices.