Ethiopia expects government spending to rise sharply in the 2026/27 fiscal year as the economic fallout from the Iran war drives up fuel-related costs and places additional pressure on public finances.
Finance Minister Ahmed Shide said on Thursday that the government has proposed total spending of 2.34 trillion birr ($14.69 billion) for the fiscal year beginning next month, up from 1.92 trillion birr ($12.05 billion) in the current year. The increase is largely linked to expenses arising from the conflict in the Middle East, according to Shide.
“This increase mostly takes into account expenses related to the Middle East crisis,” the finance minister told lawmakers during a budget presentation.
He did not provide a detailed breakdown of the additional costs, though Ethiopia has expanded fuel subsidies since the outbreak of the war.
Like many African economies, Ethiopia has been hit by higher energy prices and increased transportation costs resulting from disruptions to global trade routes. The conflict has pushed up fuel import bills across emerging markets, creating fresh inflationary and fiscal pressures for governments that rely heavily on imported energy.
Despite the spending increase, the government expects the budget deficit to narrow to 1.4% of gross domestic product from 2.2% in the current fiscal year, reflecting confidence in revenue growth and continued economic expansion.
Ethiopia is forecasting economic growth of 10.1% next fiscal year, broadly in line with this year’s performance and among the fastest growth rates on the continent. The projection reflects continued momentum from economic reforms, infrastructure investment and improving export performance.
Export earnings remain a key focus for investors as the country navigates a complex debt restructuring process. Ethiopia generated $8.7 billion in export revenue during the first 10 months of the current fiscal year and expects that figure to reach $10.5 billion by year-end.
The export data are being closely monitored by creditors involved in negotiations over Ethiopia’s $1 billion international bond. Discussions have become increasingly contentious after bondholders rejected the government’s latest restructuring proposal last month, with some investors considering legal action.
Shide said negotiations with creditors remain ongoing and indicated that progress has been made with some Eurobond holders. A successful restructuring agreement is viewed as critical to Ethiopia’s efforts to restore debt sustainability while maintaining economic reforms supported by the International Monetary Fund.
The proposed budget highlights the growing economic impact of the Iran war on energy-importing nations, even as Ethiopia seeks to sustain rapid growth, stabilize public finances and complete one of Africa’s most closely watched sovereign debt restructurings.
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Emmanuel Abara Benson is a business journalist and editor covering artificial intelligence, global markets, and emerging technology.
He has previously worked with Business Insider Africa and Nairametrics, reporting on finance, startups, and innovation.
His work focuses on AI, digital economy, and global tech trends.
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