Yasmin Bilal
Ethiopia is preparing for a significant increase in government spending in the next fiscal year as it contends with rising costs linked to ongoing global tensions involving Iran and broader instability in international markets.
The Ministry of Finance has set projected total expenditure at about 2.34 trillion birr for the 2026 to 2027 fiscal year.
This represents a substantial rise from the 1.92 trillion birr allocated in the current budget period. Officials say the revision reflects mounting pressure on public finances, driven by external shocks and domestic spending needs.
Finance Minister Ahmed Shide said the increase is largely driven by higher import costs, particularly fuel and essential goods. He noted that Ethiopia’s reliance on imported energy continues to expose the economy to volatility in global pricing. Disruptions linked to instability in the Middle East have pushed costs higher and placed additional strain on the national budget framework.
Transport and logistics expenses have also increased as international shipping routes and supply chains face rising costs and uncertainty across key corridors. These pressures have fed into import-dependent sectors and added to inflationary trends within the domestic economy.
While the government has not outlined a specific war-related expenditure line, officials acknowledge that indirect effects of the conflict are filtering through multiple areas of spending. These include fuel subsidies, infrastructure commitments, and interventions aimed at stabilising essential imports for households and businesses.
Despite the higher spending outlook, Ethiopia is forecasting an improvement in its fiscal position. The budget deficit is expected to narrow to around 1.4 per cent of gross domestic product, down from 2.2 per cent previously. Authorities attribute this shift to tighter expenditure management and stronger domestic revenue collection.
Economic growth is projected to remain strong at approximately 10.1 per cent in the coming fiscal year. The government says ongoing structural reforms, continued infrastructure investment, and expansion across the agriculture, manufacturing, and services sectors support this performance.
However, the outlook remains constrained by persistent challenges. Inflationary pressure, foreign currency shortages, and global instability continue to weigh on economic stability. These factors, combined with external conflicts, have made fiscal planning increasingly complex and less predictable.
For Ethiopia, the focus in the year ahead will be on balancing rising expenditure requirements with the need to maintain fiscal discipline while supporting sustained economic growth.