News Austerity over Ambition: Experts Slam Ethiopia’s New Budget as IMF-Driven Burden
June 14, 2025
The government’s new 1.93 trillion Birr federal budget—its first since signing a USD 3.4 billion agreement with the International Monetary Fund (IMF) and World Bank last May—is drawing sharp criticism from economists and financial experts who warn it reflects foreign dictates more than local priorities.
Economic analyst KebourGhenna describes the budget as “an economic obituary for the public sector,” pointing to its lack of new infrastructure projects, domestic manufacturing stimulus, income tax relief, or meaningful support for the poor.
“This isn’t a growth budget—it’s a bookkeeping exercise aimed at pleasing external creditors. The IMF smiles. The Paris Club nods. And ordinary Ethiopians? They clutch their receipts and wonder how they’ll pay the new taxes,” he wrote in a social media post.
At the core of the criticism is the government’s plan to finance more than 70 percent of the budget through taxation, a significant increase that many say will place a heavy burden on an already struggling public.
“Instead of printing money to finance the deficit, Ethiopia has chosen to cut spending, raise interest rates, freeze lending, and soak the taxpayers,” Kebour wrote. “In IMF circles, that’s called ‘restoring confidence.’ On the street, it’s called austerity.”
The renowned economist is not alone in questioning intent and impact.
Mohammed Aberar, a macroeconomist, is equally critical of the reform framework underpinning the budget. He argues the entire program has been reactive rather than reformative.
“Since the launch of Ethiopia’s so-called economic reform—particularly following the agreements signed with the IMF and others—it was anticipated that we would be heading in this direction. From the start, I’ve believed that these agreements were not genuine economic reform efforts aimed at overall macroeconomic health. Rather, they were measures imposed as a response to an internal crisis. I believe they were reactive, not proactive policies,” Mohammed told The Reporter.
He warned that the direction of current fiscal policy signals an annual increase in the tax burden on citizens at least until the agreement with the international financial institution concludes in two years’ time.
“The main thrust of the agreements with the IMF was to cut spending, increase tax efficiency, and broaden the tax base. This direction implies that every year the tax burden on citizens is expected to grow, which we are now seeing materialize in the proposed budget. It is now clear that, through this budget, the government is steadily increasing the tax burden beyond what the economy is capable of bearing,” said Mohammed.
A financial expert who spoke to The Reporter anonymously worries about the implications of higher taxes.
“An additional tax doesn’t just mean an increase in price or cost—it means added expenditure on top of an already high cost of living for the public. That’s why it impacts everyone’s life,” he said. “Perhaps the government has other options—I don’t know—but the revenue it expects to collect through this method would be a huge burden on the majority of people, since it would be taxing labor. That’s a very serious implication.”
Observers raise deep concerns about the credibility of official data used to justify the projected 8.9 percent GDP growth or claims that headline inflation has dropped to 18 percent from 30 percent.
“The institutions generating this data—whether it’s the National Bank, the Ministry of Finance, or the Central Statistics Agency— have for long reportedly lacked both independence and professionalism. They plan, collect, and publish their own data with no external scrutiny,” said Mohammed.
He sees the lack of a reliable, independent source of economic data in Ethiopia as a serious flaw.
“Even international institutions depend on government data. That’s a fundamental problem—because the numbers may look good, but they don’t reflect people’s lives,” said Mohammed.
Claims about falling inflation are misleading, according to the expert.
“Inflation is a comparative metric. It measures change over time. So when you say inflation is now 18 percent compared to, say, last September, that could mean it has decreased. But the reality is prices had already skyrocketed by that month. So even if inflation slows, prices remain high. And unless people’s disposable incomes increase accordingly, even a five percent price increase becomes a major burden,” he said.
Observers agree that inflation has slowed, but note that income has not kept pace.
“Devaluation and other factors have further reduced the purchasing power of our income. So even if the inflation rate were to drop to zero, we’d still be struggling—because our income has stagnated. It hasn’t improved for years. The inflation we’re feeling now is largely a result of increased prices of goods and services, without corresponding income growth,” said one expert.
Kebour agrees.
“Inflation is down, yes, from over 30 percent to about 18 percent. A win, they say. But ask the average citizen and they’ll tell you: food still costs more, transport still burns your wallet, rents keep climbing. The numbers may be down, but the pain isn’t. Why? Because the cure was to kill demand – the same way you ‘cure’ a fever by killing the patient,” he said.
Financial experts who spoke to The Reporter foresee that more taxes will translate into less investment. They also raised concerns about the structure of the proposed budget.
“An additional tax doesn’t just mean higher prices—it means added burden on already stretched incomes. The government’s revenue expectations may come at a huge cost to the public,” said one expert, speaking anonymously.
He emphasized that the bulk of the budget is allocated to recurring expenses—primarily salaries and operational costs—rather than long-term investments:
“There’s very little set aside for infrastructure or productive sectors. This is not a transformational budget. It’s a maintenance budget, and that’s worrying,” he told The Reporter
He also cautioned against the crowding-out effect if the government resorts to borrowing from domestic banks.
“If government borrowing from local banks increases, it’ll drain liquidity. That means less credit for investors, especially SMEs. This could paralyze private sector activity,” warned the expert.
On the other hand, officials at the Ministry of Finance maintain that reforms are delivering results.
Despite the skepticism, a senior Ministry official defended the government’s position during a high-level discussion on economic and foreign policy this week.
He told the gathering at the Sheraton Addis Hotel on June 10, 2025, that the Homegrown Economic Reform program, launched in July, is being implemented with a focus on fiscal policy, revenue, expenditure, and debt management.
“Over the past years, Ethiopia has seen a significant decline in the tax-to-GDP ratio. It dropped from around 12 percent during the initial phase of reform in 2020/21 to 6.4 percent last year, essentially halving. This steep decline has led the government to intervene, particularly at the administrative level, where many challenges still remain. A lot of work is ongoing, but challenges persist. As a result, this issue is one of the main areas of focus under the macroeconomic reform program,” said the official.
He highlighted increasing tax revenues and claimed that an upcoming memorandum of understanding (MoU) could save the country up to USD 3.5 billion in debt servicing.
We’re starting to see results—tax efficiency is improving, and economic discipline is being restored,” said the official.
Yet, to many analysts and experts who spoke with The Reporter, these figures ring hollow.
“Where is the 8.9 percent growth supposed to come from? Not from exports, not from manufacturing, not from SMEs—and definitely not from new infrastructure, because there won’t be any,” he said. You can’t tax your way to prosperity or austerity your way to justice.”
Critics question whether the new budget is leading the country into reform or retrenchment.
As Ethiopia attempts to reassure foreign creditors and stabilize its economy, the domestic cost of reform is becoming increasingly visible, according to analysts.
Experts warn that without infrastructure, investment, and institutional credibility, the country risks replacing inflation with stagnation.
“It feels like we’re in a ‘sink-or-swim’ scenario. The government has lost much of its policy independence, especially when it comes to budgeting. The country is now bound by external pressures—particularly from the IMF,” said Mohammed.
He concedes the IMF deal has offered benefits, such as access to foreign currency that helped relieve some of the pressure on the economy, but remains critical of the program.
“Before entering that system, the question was: what could the government have done differently? That’s a big question,” said Mohammed. “In return for the forex support, Ethiopia now has to prioritize foreign debt servicing and import facilitation at the cost of domestic stability. These are the tough trade-offs involved in accepting externally dictated economic policies.”