A mixed bag of tight fiscal space, economic growth and fragility in Ethiopia is presaged by the flagship World Bank report released last week. 'Global Prospects Report' comes amid increased incidences of extreme food insecurity, debt default and a foreign currency drought.

World Bank's prognosis suggests a 0.6pc slowdown in Ethiopia's growth, projecting a 5.8pc figure for the current year, a sharp contrast to the government's optimistic 7.5pc estimate. The report cites increased fiscal and external pressures as contributors to this deceleration, with hopes pinned on a rebound in 2024 contingent on sustained peace and agricultural productivity amid declining fertiliser prices.

Growth among fragile lower-income countries is estimated to increase from three to 5.4pc powered by the two largest economies, of which Ethiopia is one, due to increased investment and a recovery in government consumption, while the Democratic Republic of Congo is expected to benefit from expanding metal exports.

Globally, the World Bank predicts a deceleration in growth for the third consecutive year by 2.4pc, while Sub-Saharan Africa is expected to experience a decrease of 0.3pc to 2.9pc growth. The report emphasises the importance of nuanced economic assessments to capture the complexities of the situation.

Ethiopia has faced a series of shocks, both internal and external, impacting the population's livelihoods, a reality not fully captured by traditional economic growth estimates. Economists such as Arega Shumete (PhD), express reservations about relying solely on GDP as an indicator, emphasising the need for more nuanced approaches that consider net production estimates.

"GDP does not reflect the net losses," he told Fortune. "Some sort of net production estimate would be more apt".

He cautions against crafting policies that fail to take into account food inflation, the rule of law, peace, security and health status, which have plummeted over the past few years.

"Development indexes better capture the realities of everyday life," he said.

The growth rate forecast hinges on maintaining fragile peace, reflected positively in the November treaty between forces in Tigray Regional State and the federal government. It aligns with the latest findings from the UN Office for the Coordination of Humanitarian Affairs, indicating the convergence of climate crises, armed conflicts, diseases, and economic shocks. Over 20 million people in Ethiopia are reported to require immediate food assistance while 3.7 million cases of malaria and 4.1 billion dollars are required in emergency funding.

Ethiopia's budget for the fiscal year, amounting to 801.6 billion Br, signals modest growth, the smallest in the last two decades. A tightening of fiscal space for most of the countries categorised as Emerging Market Development Economies (EMDE) will likely transpire over the coming year as countries with lower sovereign creditworthiness struggle to cope with dollar-denominated bond yields much higher than nominal GDP growth rates.