The World Bank in Ethiopia

With about 126.5 million people (2023), Ethiopia is the second most populous nation in Africa after Nigeria, and one of the fastest-growing economies in the region, with an estimated 8.1% growth in FY2023/24. However, it also remains one of the poorest, with a per capita gross national income of $1,020. Ethiopia aims to reach lower-middle-income status by 2025.

Ethiopia's state-led development model improved infrastructure and living standards. Notable outcomes include expanding nearby potable water access to 60 million more people, doubling electricity access, and a 64% increase in child vaccinations. Between 2004 and 2016, these advances helped reduce the national poverty rate from 39% to about 24%. However, the state-led development model relied on an overvalued currency, unsustainable debt, and strict regulations that limited private investment. This approach hurt competitiveness, fueled inflation, and drained resources. It did not boost productivity enough to transform the economy or provide jobs for about two million new job seekers annually, with poverty increasing between 2016 and 2021 from 27 to 32%. Human capital levels have stayed low, and 70% of the workforce still depends on agriculture. Global trade integration remains limited, and growing budget constraints sharply reduced social and capital spending. Multiple crises, including COVID-19, the conflict in Ukraine, the Tigray conflict, and droughts, worsened economic imbalances, leading to a debt default in late 2023. Living standards deteriorated further amid double-digit inflation, and the Tigray conflict displaced over 3 million people, resulting in large humanitarian and reconstruction needs (estimated at $20 billion). About 15 million people are still reliant on food aid.

To stabilize the economy and revive growth, the government embarked on a comprehensive macroeconomic reform program in July 2024, shifting to market-determined exchange rates, removing selected current account restrictions, and introducing a new interest-rate based monetary policy framework. Reforms are supported by IMF and World Bank financing, and proposed G-20 debt relief. While the official and parallel exchange rate spread has narrowed from over 100%, it remains in the low teens with market inefficiencies, including high foreign exchange (FX) commissions and fees charged by banks incentivizing continued use of the parallel market. Ethiopia needs to sustain reforms to translate economic improvements into tangible benefits for people: higher earnings, more productive jobs, and better public services.

Development Challenges
Ethiopia seeks to chart a development path that is sustainable and inclusive, in order to accelerate poverty reduction and boost shared prosperity. Significant progress in job creation, as well as improved governance, will be needed to ensure that growth is equitable across society. Achieving these objectives will require addressing key challenges including the following:

·      Sustaining macroeconomic and structural reforms to reduce the state’s dominance of the economy, increasing trade integration, and expanding opportunities for private sector growth and job creation.

·      Reducing the incidence of conflict, persisting throughout the country, not least as the related displacement, loss of livelihoods, and human capital (through learning and health impacts) amplifies vulnerability to climate and other shocks that Ethiopia is exposed to.

·      Addressing food insecurity, which is growing due to adverse weather events, heavy reliance on rainfed agriculture, locust invasion, conflict, and global conditions leading to high inflation of food prices. Frequent severe weather events alongside long-term impacts of climate change undermine agriculture and pastoral livelihoods as well as food security. The 2022 drought, the worst in forty years, severely affected millions in the southern and eastern parts of the country. Overall, more than 20 million people faced severe food insecurity in 2023.

·      Improving human capital. Ethiopia’s Human Capital Index is at a low 0.38 (2020) which means that a child born in Ethiopia today will achieve only 38% of their development potential. This is lower than the average for the Sub-Saharan Africa region but slightly higher than the average for low-income countries. Learning poverty stands at 90% and 37% of children under 5 years of age are stunted.

·      Generating good jobs. The country’s growing workforce (with roughly 2 million people reaching working age per year) puts pressure on the absorption capacity of the labor market, and necessitates improving current jobs, while creating sufficient new jobs.

In February 2024, the Ethiopia Country Climate and Development Reports (CCDR) was released, sharing findings regarding the increasing impact of climate change that are threatening Ethiopia’s development prospects. The report notes that annual average losses to gross domestic product (GDP) are expected to range between 1-1.5% of GDP and to rise to 5% by the 2040s, potentially pushing millions more Ethiopians into poverty (press release).

The new analysis also points to opportunities for growth and increasing prosperity from climate-informed development policies. These are especially visible in agriculture where, with the support of reforms, Ethiopia can potentially shift from being a net importer of agricultural commodities to generating sizable surpluses of as much as 20% (relative to domestic demand), with climate change, especially under potentially warmer and wetter conditions, increasing these surpluses to 25%.

Last Updated: Apr 24, 2025

The World Bank Group’s (WBG) strategic focus is to assist Ethiopia in forging a more inclusive and sustainable growth path, supporting the objectives of the Home-Grown Economic Reform Agenda and the current 10-Year Development Plan. The WBG supports a more spatially inclusive approach to development, one that leverages national programs to provide quality services to all areas of the country.

The WBG’s strategic interventions prioritize human capital development, with a strong focus on expanding basic education, improving youth employment, and enhancing access to markets. These efforts are designed to foster structural transformation and equip Ethiopia’s workforce for the future. Additionally, the WBG is working to enhance resilience and social inclusiveness by targeting gender equality, expanding social safety nets, and investing in sustainable landscapes, while advancing the Early Years Agenda, a critical component of Ethiopia’s long-term growth strategy.

As of April 9th, 2025, the portfolio in Ethiopia consists of 47 active projects—37 national and 10 regional —with a total commitment of $15.34 billion. This includes $12.28 billion allocated to national programs and $2.43 billion for regional integration, complemented by $0.63 billion in trust fund financing.

 The projects in the portfolio span critical sectors, including macro-economic reforms to support sustainable growth, and initiatives for conflict-affected communities and internally displaced persons (IDPs). Key areas of focus include agriculture, sustainable land management, healthcare, education, water, and sanitation, as well as energy, transportation, digital development, and trade logistics. Recently approved projects focus on various key sectors such as governance modernization, women's health, financial sector strengthening, and education transformation. These activities are designed to boost institutional efficiency, enhance access to essential services, and promote sustainable development throughout the country.

The International Development Association (IDA) is Ethiopia’s largest provider of official development assistance. IDA not only offers substantial financial support but also provides evidence-based analytics and advisory services to enhance decision-making and improve policy implementation. Since 2000, IDA has committed more than $30 billion to 167 projects in Ethiopia, with flagship programs such as: Development Policy Operations (DPOs) supporting policy reforms, Low Lands Livelihoods Resilience Project and Agriculture Growth Projects, Response–Recovery–Resilience for Conflict-Affected Communities Project, Locust Emergency Response and Flood Management Projects, Human Capital Development and Digital Foundations Projects, along with critical investments in energy, water, and transportation. Through these wide-ranging initiatives, the WB is driving structural transformation, improving living standards, and ensuring that Ethiopia builds a resilient, inclusive economy capable of withstanding future challenges.

A robust private sector is pivotal to Ethiopia’s economic future, with the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) playing crucial roles in facilitating private sector-led growth. Their efforts support both local enterprises and foreign investments, creating a more dynamic and competitive market environment that can drive Ethiopia's development agenda forward.

As of March 31, 2025, IFC has a committed portfolio of $345.1 million across 13 investment projects in Ethiopia and a well-diversified advisory portfolio of $49.7 million across 26 projects covering IFC’s three industry groups: Financial Industries, Manufacturing Agribusiness and Services, and Infrastructure and Natural Resources. IFC is financing projects in cement, the cut flower sector, packed food, coffee, poultry, health, telecoms, mining, and trade finance. Projects in IFC’s pipeline span across infrastructure,manufacturing, telecom, renewable energy, agriculture value chains that support food security and local production covering the malt/barley sector, poultry livestock, edible oil, and the financial sector.

IFC’s strategy in Ethiopia focuses on sectors that can address binding constraints to growth and the need for inclusion, sustainability, and job creation, along with advisory services to help improve the investment climate, trade policies, and gender disparities.  IFC intends to continue playing a critical role in private sector-led job creation and mobilizing private capital at scale across key target sectors in the country.

MIGA is actively supporting foreign investors in Ethiopia through its political risk insurance product, with a gross outstanding exposure of $1.15 billion as of end-August 2024. Ethiopia ranks as the seventh largest host country in MIGA’s portfolio and the largest host country in Africa. Currently, MIGA is supporting five projects across the telecommunications, manufacturing, and energy sectors, which include the first privately owned telecommunications network that was granted the second unified telecommunication service license in Ethiopia; a manufacturing and distribution of edible sunflower oil and soya bean oil plant; the establishment of a flour processing and pasta manufacturing plant; a manufacturing and distribution of laundry soaps, detergents, and personal care cleaning products plant; and the development of a 150 MW geothermal power plant.

As part of the new World Bank Group Guarantees Platform, which will be housed at MIGA, MIGA will also leverage deeper collaboration across the World Bank Group to de-risk foreign investment, paying close attention to projects that support climate finance and boost job creation.

Last Updated: Apr 24, 2025

Education
IDA’s support for the education sector—including through the General Education Quality Improvement Program for Equity —has helped Ethiopia expand access to quality pre-primary and primary education over the last ten years. There has been significant expansion of the general education system, increasing from 7.1 million students in 2000 to 26 million in 2020. As a result, net enrollment rates in primary education and secondary education have increased to about 95% and 25%, respectively. In addition, IDA supports the technical and vocational education and training, and higher education sub-sectors through its regional projects — e.g., East Africa Skills for Transformation and Regional Integration Project — to increase access and improve quality of Technical and Vocational Education and Training (TVET) programs in selected Regional Flagship TVET Institutes and to support regional integration in East Africa; and the Eastern and Southern Africa Higher Education Centers of Excellence Project—to strengthen selected institutions to deliver quality postgraduate education and build collaborative research capacity in the regional priority areas.

Water and Sanitation
IDA’s support to the water and sanitation sector has helped the country make significant progress in improving services in the past decade. More than 60 million people in Ethiopia now live within 1 kilometer of an improved drinking water source. Open defecation rates fell by 63%, which was the largest decrease observed in the world. With the rapid increase in population, however, around 60 million people still lack access to basic drinking water and over 112 million have no access to at least basic sanitation, and over 22 million people are still practicing open defecation.

The OWNP Consolidated WASH Account Project plays a catalytic role in sector financing, attracting $196.89 million of finance from six other donors and international financial institutions into a pooled fund that is managed under the World Bank’s oversight. Additionally, the program leverages $93 million of matching fund from the Government of Ethiopia. OWNP-CWA creates a unique platform for coordinating WASH sectors and harmonizing development partners in the sector. It focuses on enhancing climate resilience and access to water supply service, quality, and sustainability, as well as providing equitable access to improved urban and institutional sanitation services – targeting 4.4 million people with improved water supply and 4.75 million with improved sanitation.

Social Protection
The Ethiopia Social Protection(SP) portfolio promotes human development and economic inclusion of the poor for sustainable poverty reduction and improving human capital development. SP has been at the forefront of responding to the various crises that have struck Ethiopia over the last couple of years. While responding to shocks, the SP portfolio also contributes vastly to providing jobs to the poorest.

The Strengthen Ethiopia’s Adaptative Safety Net (SEASN) Project ($1.1 billion IDA) has been instrumental in supporting the government’s fifth phase of the rural Productive Safety Net Program. Nearly 8 million individuals in 492 districts are benefiting from the program. SEASN also hosts and manages a multi-donor trust fund that has 14 donors jointly providing financing and implementation support to the PSNP.

Key impacts of the project include:

·      Income generation and climate resilience: 6.8 million beneficiaries receive short term employment by participating in public works activities. These jobs enable them to earn a living while enhancing their communities’ climate change adaptation and resilience.

·      Public works activities have significantly increased soil health: Increased soil carbon stocks, resulting in up to 3.5 times higher critical macronutrient concentrations in the soil.

·      The complementary livelihoods program has provided support to build small enterprises, targeting 750,000 individuals with life and business skills training, enterprise development training, a cash grant and access to credit services, as well as mentoring and coaching for income diversification and sustainable livelihoods.

·      Financial inclusion: Over 1.1 million beneficiaries have opened bank accounts for the first time.

·      Enhancement of human capital outcomes: Programs in early childhood development, nutritional improvements, and promoting sustainable livelihoods through economic inclusion activities.

The Urban Productive Safety Net and Jobs Project (UPSNJP) is helping to improve the income of the poor and promote labor market inclusion of disadvantaged youth, including refugees, Internally Displaced Persons, and their hosting communities. The project covers 1.75 million people with various vulnerabilities. It is operational in 88 cities.

Specific results include:

·      519,955 poor urban residents and 75,000 refugees in eight refugee camps, have accessed employment opportunities through the public works program; accompanied by financial and business skills training and a one-time grant to support their livelihood activities.

·      770,397, internally displaced people in Amhara, Tigray, Oromia, and other areas received cash transfer and reintegration/ relocation support.

·      62,000 youth (high school dropouts) were supported with digital skills training and apprenticeship with private firms.

·      160,478 people who are unable to work received direct income support and service linkages such as CBHI. The public works activities improved the environment and neighborhood cleanliness of communities. 

Transport
IDA’s current transport sector portfolio includes $1.6 billion in commitments. Over the past three decades, IDA's support has evolved from emergency road rehabilitation in the 1990s to improving strategic road networks, enhancing regional connectivity for trade, economic transformation, job creation, and ensuring rural connectivity for food security. IDA has contributed nearly $4 billion, collaborating with partners like the African Development Bank, European Union, and bilateral partners to expand and maintain the road network, build climate resilience, enhance safety, boost road agency safeguards, expand the expressway network, promote logistics efficiency, support railway reforms, and improve urban mobility. The road network has grown from 27,000 km in 1997 to 166,000 km today, benefiting the entire country. This strategic investment, combined with institutional capacity building, has significantly contributed to Ethiopia's economic development, with one World Bank study citing a 0.6% annual contribution to GDP.

Last Updated: Apr 24, 2025

Several development partners are active in Ethiopia and international partners remain committed to the harmonization of development support efforts.

Currently, Canada and the African Development Bank are the rotating co-chairs of the Development Partners Group (DPG), the main forum for donor coordination in Ethiopia. Through the DPG, including its sub-working groups, efforts are made to advance implementation of commitments, including joint economic and sector work (much of the WBG’s major analytical work is already prepared with its partners) and joint missions.

The launch of the Expressway Development Support Project (EDSP) marked a historic moment in the WBG’s partnership with Ethiopia, as it is the first project co-financed with China EXIM Bank and South Korea EXIM Bank. The project brings together traditional and non-traditional development partners to work on a single project, with standardized design, safeguards, and joint implementation support.

The World Bank is coordinating with the United Nations Office for Project Services (UNOPS), which has been contracted by the Government of Ethiopia to implement the Response-Recovery-Resilience for Conflict-Affected Communities in Ethiopia Project in areas of high risk of conflict. The project supports efforts to address the immediate needs of communities, rehabilitate infrastructure destroyed by conflict, and increase community resilience to the impacts of conflict in a sustainable manner.

The WBG maintains close partnerships in Ethiopia to support development for forcibly displaced populations and vulnerable communities hosting them. With bilateral and UN partners, the WBG supports the Government of Ethiopia in augmenting sustainable services and support to these hosting areas.

The WBG has taken the lead in developing a set of multi-donor programs to reduce transaction costs, aligning support with the country’s decentralized model, and enhancing the predictability of aid. These instruments allow for large-scale leveraging of IDA support. Such approaches are used in several IDA-supported programs including: Enhancing Shared Prosperity through Equitable Services; the Productive Safety Nets Program; the Health Sector SDG Pooled Fund PFR, and the Water Supply, Sanitation, and Hygiene Universal Access Program.

Last Updated: Apr 24, 2025