Business Half-Billion Dollar Financing Gap Headlines New AfDB Assessment
Half-Billion Dollar Financing Gap Headlines New AfDB Assessment
March 14, 2026
Ethiopia has received less than half of the development financing envisioned under the African Development Bank’s Country Strategy Paper (CSP) for 2023–2027, even as the country grapples with easing but still elevated inflation, weak domestic revenue, structural employment challenges, and widespread poverty, according to the bank’s newly released mid-term review of the strategy.
The mid-term assessment of the strategy paper by the African Development Bank (AfDB) published this week shows that only USD 538.8 million in financing was approved for Ethiopia between 2023 and 2025, far below the USD 1.114 billion initially in the investment pipeline.
The shortfall occurred despite the CSP’s goal of supporting Ethiopia’s economic transformation and infrastructure development under two priority areas including improved economic governance and quality infrastructure to support agro-industrialization.
According to the document, the funding gap was largely driven by lower allocations from the African Development Fund and the failure of several planned private-sector projects to materialize.
Despite the reduced financing envelope, the Bank reported that projects approved so far are concentrated mainly in infrastructure sectors such as energy, agriculture, transport, and governance.
The mid term assessment shows despite shifting budget targets, Ethiopia’s financial landscape saw significant activity through 2024 and 2025. Two major Non-Sovereign Operations (NSOs)—trade finance guarantees for Dashen Bank and Awash Bank—were approved, totaling USD 90 million.
On the development front, Ethiopia’s performance-based allocation from the African Development Fund reached USD297.95 million. While this figure is lower than the USD 532.5 million initially projected for the 2023-2025 period, the gap was bolstered by aggressive resource mobilization.
Approximately USD 523.24 million was leveraged through a diverse coalition of bilateral partners—including the Netherlands and Korea EXIM—and specialized trust funds, according to the document.
The review indicates that Ethiopia’s macroeconomic situation remains strained despite signs of improvement in inflation.
According to the report’s executive summary, inflation had reached 26.6 percent during the peak of recent economic pressures before declining in subsequent years as fiscal consolidation and stabilization measures were implemented.
The report links the earlier spike in inflation to macroeconomic imbalances, war-related spending, and the disruption of external financing during the conflict period.
“The fiscal deficit peaked at 4.0 percent of GDP in 2021/22, resulting from a rise in military expenditure and a suspension of grants due to the civil war in Tigray, but this has declined to 3.0 percent of GDP in 2023/24 and to 1.6 percent of the GDP in 2024/25, owing to the peace dividend and the fiscal consolidation policy,” it reads.
The bank also reports that gross national income (GNI) per capita of USD 1,144, growth remains robust, though it has slightly slowed down since 2019, due mainly to mounting macroeconomic imbalances. Real GDP growth was high at 7.2 percent in the 2022-2024 period, mainly driven by services on the supply side and private consumption on the demand side.
Although inflation has eased from those peak levels, the AfDB notes that macroeconomic pressures persist due to structural weaknesses in the economy.
Beyond macroeconomic indicators, the review highlights the slow pace of structural transformation in Ethiopia’s economy.
The bank notes that Ethiopia continues to struggle with limited diversification, weak competitiveness, and insufficient integration into global markets.
According to the report, the underlying development challenges continue to include a large infrastructure deficit, and a private sector constrained by weaknesses in economic governance, specifically the regulatory environment, limited access to finance, and acute skills mismatch among its job-seeking youth. External shocks and conflicts confound these challenges.
On a related note, one of the most pressing concerns highlighted in the report is Ethiopia’s youth unemployment challenge.
The document warns that millions of young Ethiopians entering the labor force each year face limited employment opportunities.
“High youth unemployment, with more than two million youth entering the labour market yearly, is a key concern due to its potential for social upheavals,” the report states.
Youth unemployment currently stands at 23.1 percent, nearly three times higher than the national unemployment rate of around 8 percent.
The AfDB attributes the problem to several structural factors including skills mismatches, a weak private sector, and limited economic diversification.
“The policy shift towards private sector-led growth as the primary driver of job creation is also being operationalized, even though a conducive environment for private investment and enterprise development is required. Sustainably resolving the youth unemployment challenge in Ethiopia therefore requires a vibrant private sector,” reads the document.
The review further reveals that poverty continues to affect the majority of the population despite years of strong economic growth.
According to the 2024 Multidimensional Poverty Index cited by the report, 68.7 percent of Ethiopians are considered multidimensionally poor, reflecting widespread deprivation in areas such as education, health, and living standards.
The report notes that the intensity of poverty is estimated at 53.3 percent, indicating that those classified as poor experience multiple overlapping deprivations.
“Poor nutrition, child mortality, and limited access to basic services are key contributors to high MPI,” the document states.
The government’s Ten-Year Development Plan (TYDP) aims to reduce poverty significantly by 2026, but the AfDB warns that ongoing conflicts and political instability have slowed progress in delivering essential services.
Despite these challenges, Ethiopia remains one of Africa’s largest economies and has continued to record relatively strong growth.
The AfDB report describes the country as the ninth-largest economy in Africa, although it remains a low-income country with limited industrial transformation.