Issue No. 260

From War to Welfare

As international support continues to return to Ethiopia, Addis has secured substantial financial backing from institutions like the IMF and World Bank, as well as renewed sovereign loans from individual governments. Yet this influx of funds has done little to alleviate the hardships faced by ordinary Ethiopians. Soaring inflation, particularly in the cost of food and fuel, has made basic necessities unaffordable, while millions remain dependent on humanitarian aid to survive. Far from easing the burden on Ethiopian citizens, potential financial lifelines highlight a troubling disconnect between international support and the realities on the ground, where both rural and urban communities continue to grapple with rising poverty and economic instability.

Ethiopia, with a population estimated at over 130 million in 2024, once celebrated rapid economic growth that halved extreme poverty and improved health and education. But these achievements are now unravelling under the strain of inflation exceeding 35%, global supply chain disruptions, extreme weather events, and protracted armed conflict in parts of Tigray, Amhara and Oromia. These crises have destabilised agriculture, displaced millions and deepened food insecurity, with over 20 million people now requiring urgent assistance.

The government’s allocation of resources is now under scrutiny, particularly its focus on military expenditure. Ongoing unrest, particularly the Fano insurgency in Amhara, has prompted escalating military spending, reportedly exceeding USD 1 billion during the Tigray war alone. This focus on military solutions strains Ethiopia’s budget, diverting resources from critical sectors like healthcare, education and infrastructure. Consequently, poverty rates have surged to 68.7%, with Ethiopia now ranking 175th on the Human Development Index and 145th in progress toward the UN Sustainable Development Goals.

Ethiopia has recently  implemented significant economic reforms to secure bailouts from the IMF and World Bank. These have included a market-based exchange rate, removing most restrictions on current accounts, and modernising monetary policies. Among the most notable changes is the floating of the birr, which has served to align it with black market rates, and a 14 November revision to the National Bank of Ethiopia (NBE) that allows exporters to retain 50% of their foreign currency earnings. While these reforms are intended to address inflation, foreign currency shortages and mounting debt, they have in fact exacerbated price instability and eroded purchasing power, further burdening the average Ethiopian.

These reforms also signal a shift from the developmental state model championed by former PM Meles Zenawi, which prioritised state intervention and infrastructure-driven growth. By contrast, Abiy Ahmed’s administration has embraced a free-market approach, selling off public industries and welcoming privatisation. While Meles’ policies sought to lay a foundation for democracy and middle-class growth, Abiy’s strategy appears driven by the immediate need for foreign investment, often at the expense of social safety nets.

Despite significant international support, there is growing concern that much of the financial assistance intended to aid Ethiopia’s most vulnerable populations is instead being diverted to sustain ongoing armed conflicts in Amhara and Oromia.Rather than stabilising the economy or rebuilding infrastructure in conflict-affected regions, resources appear to be disproportionately absorbed by military operations. This diversion not only prolongs political instability but also undermines urgent recovery efforts, leaving displaced communities and struggling populations without the support they desperately need amid a worsening humanitarian crisis.

The destruction still prominent across Tigray, and now in Amhara and Oromia, starkly contrasts with high-profile government projects, such as the renovation of Meskel Square in Addis Ababa. These development projects, while visually striking, highlight a troubling prioritisation of image over substance. Outside the capital, infrastructure remains in shambles, aid is insufficient, and millions of displaced Ethiopians are struggling to rebuild or sustain their lives. Agricultural disruptions caused by armed conflict and extreme climate events exacerbate inflation, while supply chains remain broken and rural economies grind to a halt.

Ethiopia’s strategic importance continues to attract foreign investment, particularly from the UAE and China, who view the country as a gateway to the Horn. Western nations, wary of ceding influence, remain engaged but often tie financial support to governance reforms. This geopolitical competition underscores Ethiopia’s ongoing global significance, but does little to address its domestic crises.

The current trajectory of the Ethiopian government is unsustainable, with military spending and vanity projects overshadowing the urgent need for meaningful humanitarian aid, development assistance and reform. Ethiopia faces mounting inflation, deepening poverty and persistent instability, yet resources are being diverted from rebuilding and addressing citizens’ most basic needs. Without a decisive strategy to stabilise the economy, rebuild infrastructure and prioritise public welfare, Ethiopia risks further entrenching its dependence on foreign aid and further exacerbating the struggles of its people.

International support and economic reform offer opportunities to effectively address these challenges, but their impact is currently undermined by misplaced priorities. Military operations and superficial development cannot replace the comprehensive recovery efforts and governance reform essential for Ethiopia’s brighter future. To escape cycles of poverty, armed conflict, political unrest and economic instability, the Federal Government of Ethiopia must shift its focus from war to welfare, channelling resources towards rebuilding lives, fostering growth and restoring trust.

By The Ethiopian Cable Team