Highlights 

Ethiopia has been impacted by the onset of the Iran crisis in early 2026, which has destabilized the global macroeconomy. The conflict has disrupted energy and fertilizer markets globally. The tension around the Strait of Hormuz, which is one of the world’s major transits mainly for oil and fertilizer, has had ripple effects on African economies. The oil price has moved from an average of US$62 a barrel in 2025 to $115 in May 2026. In Ethiopia, the immediate effects have been an increase in fuel prices in March 2026 and a decline in the supply of diesel. As a result, headline inflation in April rose to 11.7 percent from 9.4 percent in March 2026. As of end of June 2026, the conflict has abated with peace discussions, and oil price is at US$ 70 per barrel.

⊲ Strong leadership and measured policy responses by Government of Ethiopia, especially at Ministry of Finance, Ministry of Planning, and NBE have so far contained the impact of the crisis. The oil supply of Ethiopia is mainly through Government to Government (G2G) agreements, especially with the Government of Kuwait, which has experienced some disruption. The Government has responded with a multi-pronged strategy: spot market purchase of fuel (especially diesel); rationing and conservation measures; a partial increase of pump prices coupled with some maintenance of subsidy; prioritization of key sectors; crackdown on smuggling, and resource mobilization from international financial institutions. 

• Part of Ethiopia’s resilience is due to stable buffers amid continued macroeconomic reforms. The IMF projects Ethiopia’s economic growth to cross 9 percent in 2026 and continue to be one of sub-Saharan Africa’s fastest-growing economies. The growth has been broad-based with all sectors - industry, agriculture, and services contributing.

• The country continues to have strong reserve buffers. Ethiopia’s reserves position reached above $5 billion in May 2026 which can cover more than 3 months of imports. Gold and coffee exports are the main drivers of the reserve build-up. Remittance inflows reached $3.3 billion by May 2026.

• As of May 2026, the gap between Ethiopia’s official and parallel foreign exchange market rates has stabilized. As per the weighted indicative rate of the NBE, the official exchange rate is 159.6 Birr/US$, while the parallel market remains close to 180 Birr/US$. This has been achieved through tighter NBE oversight on bank dollar holdings, increase in auctions, and formalization of remittance market. 

• Ethiopia’s fiscal position has been challenged in the aftermath of the various shocks. The fiscal deficit/GDP ratio may widen due to the increase in the fuel subsidies following the Middle East crisis. Due to macro reform, tax revenues have continued to perform well. 

• Due to tighter monetary policy, inflation has been contained. Year-on-year headline inflation was 9.4 percent in March 2026. However, the spillover from the crisis has led to an increase in inflation to 11.7 percent in April 2026. 

• The stock of Ethiopia’s external debt reached $34.4 billion in December 2025. The Government is working closely with bilateral creditors to restructure debt. However, a group of private creditors are threatening legal action over a defaulted $1 billion Eurobond. But, end June 2026, Ethiopia has reached a restructuring agreement with bondholders for the $1 billion. 

• Human Development and Poverty: Macro-micro links are still of concern. The UNDP Human Development Index (HDI) for Ethiopia has not improved in recent years. The World Bank had forecasted that poverty would rise to 43 percent by 2025. Government poverty estimates for 2025 are expected to be released in a few months after the completion of the 2024-25 Integrated Household Income Consumption Expenditure (IHICE) Survey. The Demographic and Health Survey 2025 data indicate a mixed performance in health.

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