Ethiopia’s Revenue Surges 77%, But Fiscal Risks Loom

ADDIS ABABA, Ethiopia – Ethiopia's government revenue and grants surged by a nominal 77% in the first quarter of the fiscal year, a significant jump driven by a strong rebound in donor grants and improved tax collection. However, the impressive headline figure masks underlying fiscal strains, with capital spending lagging and the government executing less than a quarter of its annual budget, according to a new report from the Ethiopian Economics Association (EEA).

The government collected 177.2 billion birr in the first quarter, achieving 31% of its annual target. A key driver was the exceptional performance of grants, which hit 161.4% of the annual target, signaling renewed engagement from international partners after a year-long gap. Tax revenues were also robust, buoyed by indirect taxes. Despite these gains, a significant fiscal deficit of 21 billion birr (with grants) remains.

The EEA's report highlights a critical challenge for Ethiopia's economic managers: converting strong revenue growth into effective public investment. Capital expenditure, a key driver of long-term growth, had the lowest budget execution rate at just 18.3%. This slow rollout of development projects, if it continues, could undermine the country's reform momentum. The government's ability to accelerate capital spending while maintaining fiscal discipline will be a crucial test in the coming quarters and a key focus for investors and the IMF.