Ethiopia: Will Renewed Conflict Derail Ethiopia's Economic Growth?

What the report says

Ethiopia’s economy is expanding at a strong pace, but a Deutsche Welle report distributed by AllAfrica says renewed fighting in the north could threaten that progress by discouraging investment, increasing pressure on government finances and adding to living costs. The article cites International Monetary Fund forecasts of 9.2% real growth for the 2025–26 fiscal year, while noting that inflation, debt and reconstruction needs remain significant challenges.

The report places the current risks in the context of Ethiopia’s recent conflict history, especially the 2020–2022 war in Tigray and surrounding areas. It says that fighting during that period caused extensive damage to infrastructure, business activity and farmland, with a World Bank-backed assessment estimating more than $22.6 billion in damage and nearly $19.7 billion needed for reconstruction and recovery. The article also notes that Ethiopia defaulted on a Eurobond interest payment in late 2023 and has since been pursuing reforms under an IMF-backed program.

According to the analysis cited in the piece, a renewed escalation could force the state to shift spending toward security and away from development, while also slowing tax collection in affected regions. Businesses might postpone investment, lenders and donors could become more cautious, and foreign exchange shortages could worsen if military demand rises. The article says agriculture, tourism and hospitality are especially exposed, particularly in rural areas. It also notes that there is no concrete evidence yet of companies leaving Ethiopia for neighboring markets, though instability can influence investor decisions.