Ethiopians Celebrate Big Dreams, While Everyday Realities Cast Shadow

Sep 6 , 2025.

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The dawn of a new year is more than a simple turning of the calendar. It is a moment heavy with national pride, buoyed this time by the long-awaited completion of the Great Ethiopian Renaissance Dam (GERD), a flagship project six years overdue. With GERD poised to run at full throttle, generating more than 5,000MW and potentially earning the country over a billion dollars in annual electricity exports, the air is thick with both celebration and relief.

The political leaders, engineers, planners, and workers who shepherded the project from blueprint to reality deserve sincere commendation. For millions of Ethiopians, the GERD represents more than a mere power plant. It is an emblem of collective achievement and a beacon for national renewal.

However, as always in Ethiopia, celebration comes tempered with caution. The past year, for all its high-profile milestones, was not one of unqualified joy. Momentous macroeconomic reforms were drafted, but the reality for the majority was a daily grind of uncertainty.

Alongside the completion of GERD, another long-delayed event occurred. The formal launch of the Ethiopian Securities Exchange (ESX) after a half-century hiatus. Foreign banks from Nairobi to Cairo would be sharpening their pencils, keen to enter the market. Despite the high anticipation and the anxiety that followed due to the hyped up fear of their impact on the domestic banking industry, hardly anyone beyond them would come, though.

Monetary and banking reforms are underway. The central bank, under Governor Mamo, soaked up 377.9 billion Br in liquidity through auctions and saw 482.3 billion Br in online interbank trades at an average rate of 16.8pc. The policy rate rose to 15pc, lending rates to 18pc. A new directive, modelled on Basel II/III, expanded risk categories, and credit derivatives are now banned. Stress tests reveal that if the 10 largest depositors pulled out, 20 of 29 banks would miss liquidity requirements. Regulators have told smaller banks to raise capital to five billion Br by June 2026, convinced that forced consolidation may create larger but still brittle banks. Foreign reserves tripled to cover 2.7 months of imports.

Although federal authorities succeeded in securing a program with the International Monetary Fund (IMF) for 3.4 billion dollars in economic bailout, these events have done little to dispel a mood of anxiety among ordinary citizens. Euphoric ribbon cuttings and bell-ringing ceremonies cannot disguise the mounting pressures on ordinary households. The average person is on the receiving end of the brutal policy recommendations by international policy wonks.

The shadow of militarised conflicts still hovers.

The new year will undoubtedly test Ethiopians' resilience, and success may depend more on measured governance than on declarations of intent. The launch of the ESX was heralded as a new beginning, but it remains to be seen if capital markets can fulfil their promise. Policymakers' overtures to the IMF and the anticipated entry of foreign banks may signal a change. But beneath the headlines, daily life has seen scant improvement.

Inflation has cooled, but the year-on-year (YoY) spike still lingers close to 20pc. Real wages, measured against the US dollar, if not shrinking, have certainly failed to keep up with prices. New tax measures have bitten almost everyone as foreign aid, once accounted for 12pc of GDP, has fallen by a third. Last year’s depreciation of the Birr drove up the prices of food and fuel. The planned removal of fuel subsidies is set to squeeze household finances further. Civil servants, who were told their pay would rise, discovered that tighter income tax rules erode any gain.

The new tax regime narrows exemptions and lifts rates; increases disappear before they are felt. Public revenues, once shored up by donor funding, now lean more heavily on payroll taxes as the budget gap will likely widen.

The financial sector is itself on fragile ground. Liquidity is a constant worry, with the Central Bank, which has seen its most controversial Governor, Mamo Mihretu, leave last week, warning that a sudden withdrawal by top depositors could trigger chaos overnight. Fraud and insider abuse are on the rise, costing banks more than 1.3 billion Br last year. Digital banking, once touted as a silver bullet, has brought as much risk as convenience. The industry weathered the previous round of exchange-rate reform, but confidence remains brittle. Another shock could expose deeper fault lines.

Politics has added another layer of volatility. The Pretoria peace accord is fraying as TPLF factions spar with regional authorities and the federal government ponders intervention. Boundary disputes between various regional states, including Oromia, Somali, and Afar, simmer, while full-blown insurgencies continue in Amhara and Oromia Regional states. National elections are approaching, and the risk is that unmet promises will erode public faith.

A sharp rise in prices, coupled with persistent political instability and insecurity, may further dull enthusiasm for the ballot box.

The country’s regional ambitions are also stirring tensions. Prime Minister Abiy Ahmed’s (PhD) recent claim that access to teh Red Sea is “existential” for Ethiopia has raised hackles across the Horn of Africa. His declaration to "correct the mistake of landlocked status” led Eritrea to welcome Egyptian and Saudi investment in the port of Assab. Abiy's deal with the former Somaliland President, Musa Bihi, trading recognition for a leased naval base, provoked Somalia's leaders, just as Mogadishu was preoccupied with renewed Al-Shabaab violence.

One defining moment in the past year came on July 28, 2024, when the federal government announced a historic liberalisation of the foreign-exchange regime. The Birr would supposedly float, with its value determined by market forces, but it ended up being guided by managed depreciation. Forex auctions have tried to steady the market, but hard currency is still scarce. The gap between official and parallel market rates remains stubborn.

The new capital market provided another headline, as the ESX moved from set-up to trading, with the CBE, Wegagen Bank, and later Gadaa Bank making inaugural listings. Treasury bills (T-bills) are now traded in secondary markets, marking progress. Still, the exchange is shallow, with few listings and thin liquidity. Ethio telecom’s partial privatisation, a hoped-for Br 30 billion retail IPO, raised only 3.2 billion Br, forcing the government to shift toward institutional and diaspora investors. Regulatory hurdles and valuation worries dampened enthusiasm.

Fiscal policy has been ambitious, if not foolhardy. The federal budget for 2025/26 nearly doubled to 1.93 trillion Br, but more than 61pc goes to recurrent spending. Only 21.5pc is earmarked for capital investment, a tilt some say threatens long-term growth. Tax revenues cover 73pc of public expenditures, while the deficit is plugged with foreign loans.

In Addis Abeba, the city councillors passed the first self-financed budget (350 billion Br), a 45pc increase, achieved without federal help. City officials plan to channel 71pc of this into capital investment, though the targets appear aggressive and funding remains uncertain. Some urge the city to consider municipal bonds or tap the young capital market, but off-budget borrowing could create new dangers.

In the new year, the Birr is likely to lose more value, and inflation may stay in double digits, swinging between 13pc and 18pc. More companies may list on the ESX, but liquidity will remain tight. Some smaller banks are expected to merge or seek investors to meet new capital rules. Expansionary budgets may shift more funds to capital projects if growth stalls, but setbacks in security or exports could reopen the balance-of-payments gap.

For most Ethiopians, the rising cost of living and unemployment will remain the primary concerns. The true test of reform will be whether these new policies bring real, everyday improvements. Grand projects and bold announcements may raise hopes, but only discipline can turn this year’s gains into lasting progress.

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PUBLISHED ON Sep 06,2025 [ VOL 26 , NO 1323]

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