Ethiopia’s Nominal GDP Dropped by USD 50bln after Floating: EU Chamber Report
Forecasts single-digit inflation ambitions out of reach this year
A new report from the European Union Delegation to Ethiopia paints a detailed picture of the nation’s post-floating economy, revealing a dramatic USD 50 billion drop in nominal Gross Domestic Product alongside high underlying growth.
The update, titled Ethiopia Economic and Trade Update February to June 2026, compares the country’s performance before and after its July 2024 currency floating, while measuring its position against neighboring East African economies.
Despite real expansion, nominal figures provided by the International Monetary Fund show a sharp statistical contraction from nearly USD 160 billion in 2023 to USD 109.1 billion in 2025. This paradox stems from valuing all goods and services at current market prices in US dollars after the Ethiopian Birr plummeted following its float. Projections indicate a positive trajectory, expecting Ethiopia to match its 2023 nominal GDP level by 2028.
Meanwhile, Kenya’s economy has temporarily surpassed Ethiopia in nominal terms, reaching USD 136.5 billion, driven by a strengthening shilling, economic diversification, and the sharp drop in the Birr. The IMF expects Kenya to hold this lead until 2028, after which Ethiopia is projected to reclaim the top spot in the region.
The EU notes that for the first time since the currency reforms began, the downward trend in inflation has hit a roadblock. Headline inflation rose to 11.7 percent in April 2026, up from 9.4 percent in March, breaking back through the double-digit threshold.
While rising fuel costs contributed to this spike, food inflation was the primary driver, climbing to 13.5 percent year-on-year. The burden falls heavily on low-income households, which spend a large share of income on food and transport. As a result, the National Bank of Ethiopia’s goal of capping inflation around 10 percent for the fiscal year ending July 2026 appears out of reach.
The foreign exchange market is displaying rare stability after a tumultuous period. The Birr was ranked among Africa’s worst-performing currencies in 2025, having lost up to 165 percent of its value against the dollar between 2024 and 2026.
However, the second quarter of 2026 brought steady rates across official exchange bureaus, where the currency held at roughly 200 Birr per Euro and 175 Birr per US dollar throughout May. Early 2026 saw the currency hit record lows of 205 to 206 Birr against the Euro before strengthening slightly in the wake of the Iran War.
Fuel procurement remains a delicate pressure point for public finances. Ethiopia recently abandoned its traditional 360-day deferred payment model after rising global prices, higher financing costs, and Gulf supply disruptions made it unviable.
Moving to spot-market and short-term purchases restored fuel supplies by May 2026, but at significantly higher prices. To manage the burden, the government passed on partial cost increases to consumers, raising gasoline by 27 percent and diesel by 29 percent since March, while maintaining targeted subsidies for vulnerable groups. The crisis exposed a heavy reliance on Gulf suppliers like Kuwait and spurred efforts to build a more resilient fuel procurement strategy.
Trade metrics offer a mixed picture. Total exports expanded 17 percent in 2025 to surpass USD 5.2 billion, representing a significant jump from the three-billion-dollar annual average seen prior to the 2024 reforms.
Even so, these figures remain well short of official targets aimed at generating USD 10 billion in annual export revenues. Bilateral trade with the European Union saw EU imports from Ethiopia surge 53.7 percent in 2025 to nearly 1.3 billion Euros, while EU exports to Ethiopia contracted 6.1 percent to less than 1.4 billion Euros.
The report notes that to cushion the economy, the government combined its IMF-backed Extended Credit Facility program with central bank foreign exchange injections to protect essential imports like fuel, fertilizers, food, and pharmaceuticals.
It cautions that while this strategy contained acute market pressures, mounting debt servicing costs are severely squeezing the public budget.
Debt repayments now consume 43 percent of recurrent expenditure, effectively crowding out crucial capital investments. To meet its financial obligations, the government is leaning on domestic borrowing, which is pushing interest rates higher for local businesses and consumers.
The report addresses the hurdles that have faced Ethiopia’s efforts to secure debt restructuring.
Bondholders recently rejected a revised proposal for Ethiopia’s defaulted USD 1 billion Eurobond, prompting the Ministry of Finance to step back from formal talks in favor of market-based solutions. Progress has been smoother with bilateral lenders under the G20 Common Framework, where Ethiopia reached a Memorandum of Understanding with its Official Creditor Committee, co-chaired by France and China.
Central bank leadership remains confident that the IMF will declare the country’s debt sustainable by its next review in June 2027, the report claims.
Major institutions remain optimistic about overall growth capacity despite these structural headwinds. Both the World Bank and the IMF estimate Ethiopia’s economy grew by 9.2 percent in 2025, making it the sixth fastest-growing country globally. IMF projections maintain a 9.2 percent growth rate for 2026, keeping pace with historical trends prior to the 2020-2022 northern conflict.
Unlocking long-term prosperity, the report argues, will require addressing deep-seated productivity bottlenecks.