Ethiopia Posts Fourth-Highest Debt-to-GDP Rise in Africa

Ethiopia registered the fourth-highest increase in government debt-to-GDP ratio in Africa between 2024 and 2025, rising from 22.6 percent to 28.4 percent, according to the World Bank’s latest Africa Pulse report. Despite this sharp increase, Ethiopia still maintains the second-lowest debt ratio among the continent’s high-growth economies.

The World Bank attributes the rise to persistent infrastructure financing and mounting debt servicing obligations. While the country’s debt level remains comparatively low, the report cautions that such accelerated growth could jeopardize fiscal space, especially for essential sectors like health and education.

Public spending on these social services has reportedly declined to 15 percent of total revenue, down from 23 percent in 2022, as more funds are diverted toward debt repayment. The report warns that this shift may impact human capital development and long-term growth prospects if not carefully managed.

Inflationary pressure is also cited as a compounding risk. Ethiopia’s macroeconomic environment, shaped by domestic and external financing needs, continues to face volatility. The World Bank emphasizes the need for countries like Ethiopia to balance development ambitions with prudent fiscal management to avoid crowding out private investment and eroding policy credibility.

The report highlights the broader challenge facing many African economies: how to sustain infrastructure-led growth without undermining macroeconomic stability. For Ethiopia, maintaining investor confidence while navigating rising borrowing costs and competing spending demands will be a key test in the years ahead.