Ethiopia failed to achieve its 2025 middle-income country target, receiving “unclassified” status from the World Bank due to incomplete economic data and structural challenges.
The classification reflects uncertainty about Ethiopia’s economic trajectory, raising concerns among investors and development partners. The status indicates insufficient Gross National Income data meeting World Bank criteria for income category determination.
Ethiopia’s public debt burden significantly undermines economic progress, with total debt reaching $50.9 billion by September 2024. Despite a 26% nominal reduction from $68.9 billion mid-year, debt composition reveals persistent challenges.
External debt increased 7.4% while internal debt decreased due to birr depreciation against the dollar. Total public debt now exceeds 50.3% of GDP, with external debt alone accounting for 30.9%, surpassing international sustainability thresholds.
“The ‘unclassified’ status reflects short-term instability caused by reforms and external debt pressures,” explained economists familiar with Ethiopia’s fiscal outlook.
Ethiopia’s economic reform program, launched in July 2024 with IMF and World Bank support, aims to modernize the economy and attract foreign investment. However, reforms have introduced volatility, particularly in exchange rate management.
The World Bank income classification system sets low-income thresholds at $1,135 per capita GNI or less, with lower-middle-income ranging from $1,136 to $4,495. Ethiopia’s data gaps prevent meeting reclassification criteria despite ongoing development efforts.
Birr depreciation helped reduce domestic debt burdens in dollar terms while simultaneously increasing foreign debt servicing costs. This dynamic complicates fiscal management and debt sustainability planning.
Ethiopia faces persistent challenges in poverty reduction, macroeconomic stability, and recovery from conflicts and climate shocks. Infrastructure development and human capital investments have advanced but remain insufficient to offset economic headwinds.
The IMF and World Bank continue providing financial and technical support, emphasizing sustainable debt management and structural reforms. However, questions remain about debt sustainability analysis accuracy and transparency.
Ethiopia’s middle-income target setback is temporary, tied to data availability and transitional factors. With continued reforms, prudent fiscal management, and international cooperation, the country can progress toward development goals.
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