Ethiopia’s Record 2.34 Trillion Birr Budget Is Barely Bigger Than Last Year’s
The Council of Ministers has approved the largest federal budget in Ethiopian history. Strip out the effects of currency depreciation and it is almost identical in real terms to what Parliament passed eleven months ago.
Ethiopia’s Council of Ministers unanimously approved a proposed federal budget of 2.34 trillion birr for the 2026/27 fiscal year (EFY 2019) on 9 June 2026, referring the draft to the House of Peoples’ Representatives for deliberation and ratification. The figure is approximately 440 billion birr above the 1.9 trillion birr that Parliament endorsed for EFY 2018 last July, and the government has been quick to frame the difference as evidence of sustained fiscal ambition. The more relevant number, however, sits in a different column.
Converted at the current exchange rate of approximately 130 birr to the dollar, the proposed EFY 2019 budget is worth an estimated 14.7 billion US dollars. The EFY 2018 budget, when Parliament passed it, was worth roughly 14 billion dollars at the then-prevailing rate. The headline increase of nearly half a trillion birr therefore translates into a real-terms dollar expansion of around 700 million dollars. Spread across a population of 130 million people, that is approximately five dollars per person for the entire fiscal year. For a country with one of the lowest tax-to-GDP ratios in sub-Saharan Africa, an infrastructure deficit measured in the tens of billions of dollars, and a quarter of its budget consumed by debt service, that margin is not an expansion in any meaningful sense. It is a standstill. And that assessment assumes the birr holds at 130 to the dollar through EFY 2019. If the currency depreciates further under continued current account pressure, the real dollar value of the budget at year-end could be lower than what EFY 2018 delivered, making this not a record budget at all but a quiet contraction dressed in record-breaking birr figures.
The explanation is the floating exchange rate. Since the birr was liberalised in June 2024, its value against the dollar has fallen from around 57 to approximately 130. Every budget figure denominated in birr now inflates in nominal terms simply because the unit of account has weakened, not because the government commands meaningfully more resources. Ethiopia has been living this reality since EFY 2018, when a near-doubling of the nominal budget in birr terms masked what independent analysts characterised as an expansion driven more by exchange rate arithmetic than by genuine fiscal expansion.
The exchange rate effect is only one layer of the problem. Even setting dollar conversion aside and viewing the budget purely in birr terms, a significant share of the nominal increase is likely absorbed by domestic inflation before it translates into any expansion of actual purchasing power. Headline inflation, which averaged 13.2 percent across EFY 2018, has proved stubborn. After briefly falling below 10 percent in December 2025, it climbed back to 11.4 percent in April 2026, driven by food prices, rising energy costs, and supply chain pressures. A budget that grows 23 percent in nominal birr terms against a backdrop of double-digit inflation does not expand by 23 percent in real terms. Much of the apparent increase is absorbed by higher costs for the same goods and services the government was already purchasing. For capital projects priced in imported materials or dollar-denominated contracts, the erosion is sharper still.
What This Means for Banks
The implications for the financial sector are real regardless of how the headline number is framed. The National Bank of Ethiopia’s most recent financial stability data put total financial sector assets at 5.6 trillion birr as of June 2025, with commercial banks accounting for 87.5 percent of that total. A significant share of bank assets is already directed toward treasury bill holdings, and a government that cannot meaningfully expand its dollar resource envelope while pursuing an ambitious spending plan will continue to rely on domestic debt markets to close the gap. That places sustained upward pressure on the stock of government securities that banks are expected to absorb.
Debt service is already consuming around 24 percent of total federal expenditure based on EFY 2018 figures, and that share is unlikely to decline materially in EFY 2019. The IMF’s Extended Credit Facility arrangement with Ethiopia explicitly conditions continued support on the NBE refraining from direct monetary financing of the deficit. A budget that is large in birr terms but constrained in dollar terms, set against a revenue base that remains one of the thinnest in sub-Saharan Africa at below 10 percent of GDP, is a combination that will keep pressure on both monetary policy and the banking system for the foreseeable future.
What Comes Next
Parliament is expected to deliberate and ratify the budget before the start of the Ethiopian fiscal year in early July. The Council of Ministers has advised lawmakers to explore concessional loans and external partnerships to finance high-priority capital projects. Sectoral allocations have not yet been published; Banks Ethiopia will report the full breakdown once the proclamation is gazetted. Readers should also note that supplementary budgets have become routine in recent years, meaning the approved figure is rarely the final one.