Highlights

Conflict, multiple shocks, and growing macroeconomic imbalances moved Ethiopia from among the world’s fastest-growing economies to macroeconomic and debt distress. This contributed to slowing poverty reduction and deteriorating human capital outcomes.

Ethiopia’s vulnerability to extreme weather events induced by climate change was exacerbated by a stalled economic transformation that kept a large share of the population dependent on rain-fed subsistence farming.

Political turmoil—with armed conflicts between the central government and forces in Tigray, Amhara, and Oromia—led to Ethiopia being classified by the World Bank Group as being in a fragile and conflict-affected situation in FY 2022.

This Country Program Evaluation (CPE) assesses the World Bank Group’s support to Ethiopia from FY 2013 to FY23. The evaluation aims to inform the Bank Group’s ongoing engagement in Ethiopia and the next Country Partnership Framework (CPF), which is expected in FY26. The CPE period covers two Bank Group strategies and two government administrations. The first part of the CPE period, from FY13 to FY18, witnessed high economic growth with increasing macroeconomic balance, while political unrest gradually increased. The second period, from FY19 to FY20, was a brief period of government-led openness to economic reforms, though this openness was disrupted by a third period of conflict and economic crises, from FY21 to FY23.

The Bank Group’s country engagement demonstrated resilience in a changing context, achieving important outcomes. This evaluation finds that the Bank Group supported notable progress in climate resilience, agricultural productivity, and sustainable land management. The Bank Group also adapted to differing challenges in the aforementioned periods—notably, in the first period, the Bank Group and the government had different diagnoses and recommended divergent responses to address growing macroeconomic imbalances; during the second period, there was more alignment around policy reform openings, particularly on the role of the private sector and macroeconomic policies; and the focus then shifted to mitigating development risks from the conflict in Tigray and other regions and managing the economic crisis. The Bank Group adopted a pragmatic approach by collaborating with the government on mutually agreeable areas, although some transformative reforms did not materialize as expected. When reform openings arose, the Bank Group quickly adapted to support government programs, such as private sector support in the second period. The Bank Group also tried to address humanitarian challenges in Tigray by shifting to third-party implementation (TPI) and monitoring, although these methods were often ineffective. The Bank Group was less effective in engaging and mitigating risks in other parts of the program, particularly in areas identified as transformational, such as macroeconomic and private sector reforms, for which consensus was not reached for most of the evaluation period.

This report consists of five chapters. Chapter 1 describes the political, economic, and social context of the Bank Group’s engagement in Ethiopia and briefly describes the CPE’s scope and methodology. Chapter 2 evaluates the Bank Group’s strategy, operations, analytics, and coordination of development partners. Chapter 3 examines the Bank Group’s efforts to increase the private sector’s role in Ethiopia’s economy. Chapter 4 assesses the Bank Group’s climate resilience efforts, particularly through climate-smart agriculture, sustainable land management, irrigation, and social safety nets. Chapter 5 provides concluding remarks and general takeaways for Bank Group management and other stakeholders to consider.

Economic, Social, and Political Context

Ethiopia’s economic transformation stalled during the evaluation period, with its diverse population continuing to rely on agriculture for employment. Ethiopia is the largest and most populous country in the Horn of Africa, home to 86 ethnic groups who speak about 90 spoken languages. Eighty percent of the population lives in rural areas, making agriculture the largest source of employment in Ethiopia. Agricultural products account for approximately 80 percent of the country’s export goods. However, agriculture’s contribution to growth has declined since 2015, and growth was driven by the services and construction sectors during the evaluation period (figure 1.1). Overall productivity also declined, and labor did not significantly shift outside of agriculture. Chapter 3 describes the Bank Group’s support for economic transformation.

The large agriculture sector is particularly vulnerable to extreme climate events, affecting its productivity and human development outcomes. A large share of Ethiopia’s population engaged in agriculture relies on rain-fed subsistence farming. Major droughts have caused a degradation of agricultural lands and the geographical shifting of areas suitable for growing crops. Climate change has also led to social tensions in rural areas, such as increased competition and conflicts over land and food insecurity, with the latter requiring large amounts of food aid. For example, the combination of drought, conflict, and COVID-19 contributed to a growing prevalence of undernourishment, from 18.9 percent of the population in 2012 to 22.3 percent in 2021. Chapter 4 shows how climate change and natural hazards negatively affected the agriculture sector and food security, leading to the creation of Ethiopia’s national social safety net program as a more sustainable tool to help communities withstand climate shocks.

Figure 1.1. GDP Sectors by Share of GDP and Natural Hazards

Image

Share Tweet Facebook WhatsApp Linkedin Email

Figure 1.1. GDP Sectors by Share of GDP and Natural Hazards

Sources: Emergency Events Database, https://www.emdat.be/; World Development Indicators.

During the evaluation period, macroeconomic imbalances emerged, impeding private sector growth. The government’s national development plans before 2018—called Growth and Transformation Plans (GTPs)—pursued an economic development model characterized by high public investment in infrastructure, which initially resulted in high real growth rates. However, the model was also associated with maintaining negative real interest rates, an overvalued exchange rate, and monetary financing of fiscal deficits. Financial repression measures included directing credit and foreign exchange to state-owned enterprises (SOEs) that often oversaw large capital investments, interest rate caps, lending growth rate restrictions, a requirement for banks to invest a share of their portfolio in treasury bills, government ownership of banks, and restrictions on market entry into the financial sector.1 Initially, the country enjoyed strong economic growth, but it was undermined by external shocks, and macroeconomic imbalances emerged, creating challenges for private sector development. Specifically, inflation rose, private investment and external competitiveness weakened, and fiscal and external buffers were reduced. After the political change in 2018, a new government announced reforms as part of its Homegrown Economic Reform Agenda (HGERA); however, the economic shocks and conflict have hindered progress on these reforms (see chapter 3).

These factors contributed to the country’s debt distress and the reversal of some of its hard-earned development gains during the evaluation period. Economic policies led to Ethiopia’s low domestic savings rates and weak domestic resource mobilization, causing the government to turn to external borrowing to finance public spending. Combined with external shocks, such as drought and increasing unrest, the country’s risk of debt distress increased from low to moderate in 2015 and to high in 2017—less than 15 years after Ethiopia received debt relief through the Heavily Indebted Poor Countries Initiative and the Multilateral Debt Relief Initiative.2 COVID-19, price shocks due to Russia’s invasion of Ukraine, and the conflict in Tigray (discussed later in this chapter) exacerbated this situation. In 2021, the Ethiopian government requested debt reprofiling under the Group of Twenty’s Common Framework, and it defaulted on a Eurobond in 2023. The economic crisis and increasing conflict contributed to the reversal of some notable gains in human capital development and poverty eradication. Between 2016 and 2021, poverty increased in urban areas from 16 percent to 19 percent and in rural areas from 27 percent to 37 percent (World Bank 2024l). Severe food insecurity also increased from less than 15 percent of the population being food insecure from 2014 to 2019 to about 20 percent from 2021 to 2023. Human capital indicators followed similar trends—for example, gross primary school enrollment increased from 93 percent in 2012 to 103 percent in 2021 before falling to 86 percent in 2022. Ethiopia’s Gender Inequality Index improved during the period, from 0.570 in 2013 to 0.494 in 2022, despite increased rates of gender-based violence during the conflict.

Ethiopia’s political landscape started to fragment from the beginning of the evaluation period, and the governance indicators began to slip. Since 1991, the political structure under the Ethiopian People’s Revolutionary Democratic Front—a coalition of ethnic-based parties—has moved toward ethnic federalism. A new constitution in 1995 devolved powers to regional states and the woreda (district) and kebele (village) levels. After 2012—the beginning of the evaluation period—the Ethiopian People’s Revolutionary Democratic Front started to fragment and weaken, and by 2020, it was dissolved and replaced with the Prosperity Party, which continues to rule Ethiopia’s political landscape and includes all ethnic parties except the Tigray People’s Liberation Front. Political unrest and governance challenges increased during the evaluation period, contributing to worsening indicators on government effectiveness and the rule of law (box 1.1).

Multiple armed conflicts have persisted in Ethiopia since 2020, causing a humanitarian crisis and placing the country among the most fragile globally. Since 2020, Ethiopia has faced violent clashes between Ethiopia’s central government and armed groups in Tigray, Amhara, and Oromia. Most notable, the two-year Tigray conflict, from November 2020 to November 2022,3 resulted in Ethiopia accounting for more than 59 percent of all battle-related deaths worldwide in 2022 (World Bank 2024d). The conflict also caused unprecedented internal displacement, with 5.1 million people displaced in 2021, one of the highest figures ever recorded (IDMC 2025). High-intensity conflict ended in late 2022, but the fighting continues in Amhara and Oromia, Ethiopia’s most populous regions. As a result, Ethiopia’s already weak rankings on peace and fragility indexes have worsened over the evaluation period.4

Box 1.1. Ethiopia’s Governance Indicators Worsened During the Evaluation Period

All World Bank Group Worldwide Governance Indicators,a except control of corruption, are now below the 25th percentile, including political stability and absence of violence/terrorism, which is in the 5th percentile. Basic administration has declined in the Bertelsmann Stiftung’s Transformation Index, mirroring Varieties of Democracy’s data for rigorous and impartial administration (figure  B.1.1.1, part a). Ethiopia remains classified as an authoritarian regime by the Economist Intelligence Unit’s Democracy Index. It scores 20 out of 100 (not free) on the Freedom House index (2023) and 141 out of 180 on the Reporters Without Borders index (2024). The Bank Group’s Country Policy and Institutional Assessment governance scores fell further after 2022 (figure  B.1.1.1, part b).

Figure B.1.1.1. Quality of Public Administration Indexes for Ethiopia

Image

Sources: BTI 2024; V-Dem 2024; World Bank Group CPIA database.

Note: BTI = Bertelsmann Stiftung’s Transformation Index; CPIA = Country Policy and Institutional Assessment; V-Dem = Varieties of Democracy.

Share Tweet Facebook WhatsApp Linkedin Email

Figure B.1.1.1. Quality of Public Administration Indexes for Ethiopia

Sources: BTI 2024; V-Dem 2024; World Bank Group CPIA database.

Note: BTI = Bertelsmann Stiftung’s Transformation Index; CPIA = Country Policy and Institutional Assessment; V-Dem = Varieties of Democracy.

Source: Independent Evaluation Group.

Note: a. The Worldwide Governance Indicators are a research data set summarizing the views on the quality of governance provided by a large number of enterprise, citizen, and expert survey respondents in industrial and developing countries. These data are gathered from several survey institutes, think tanks, nongovernmental organizations, international organizations, and private sector firms. The Worldwide Governance Indicators do not reflect the official views of the World Bank, its Board of Executive Directors, or the countries they represent. The Worldwide Governance Indicators are not used by the Bank Group to allocate resources.

Consequently, Ethiopia was added to the Bank Group’s list of fragile and conflict-affected situations in July 2021. This list functions primarily as a tool to help the Bank Group adapt its approaches, policies, and instruments in difficult and complex environments and includes countries with high levels of institutional and social fragility (identified based on indicators that measure the quality of policy and institutions) and countries affected by violent conflict (identified based on a threshold number of conflict-related deaths relative to the population).5 Ethiopia’s central government now controls less territory than at any time in the past 50 years, affecting the Bank Group’s engagement. Figure 1.2 shows that the area the government effectively controls declined precipitously starting in 2020, reaching an all-time low in 2022. Humanitarian and development agencies, including the Bank Group, lost access to certain territories from the middle of the Tigray conflict until 2024, with the opening and closing of areas generally following the movement of active conflict and territorial contestation (figure 1.3).

Figure 1.2. Share of Territory Under State Control in Ethiopia

Image

Share Tweet Facebook WhatsApp Linkedin Email

Figure 1.2. Share of Territory Under State Control in Ethiopia

Source: V-Dem 2024.

Figure 1.3. United Nations Humanitarian Access

Image

Share Tweet Facebook WhatsApp Linkedin Email

Figure 1.3. United Nations Humanitarian Access

Sources: OCHA 2021, 2024.

Note: This map has been cleared by the World Bank cartography unit.

Evaluation Questions and Methods

This evaluation focuses on three evaluation questions. The first question covers the entire portfolio, while the other two questions assess the effectiveness of the Bank Group’s support for specific themes of focus of the Bank Group engagement during the evaluation period. The Independent Evaluation Group (IEG) identified these themes through a review of World Bank and external documents, interviews with senior Bank Group staff familiar with Ethiopia, and discussions with various stakeholders during a scoping mission to Addis Ababa in June 2023. The three evaluation questions from this CPE’s Approach Paper are as follows (World Bank 2023a):

1. How relevant was Bank Group support to addressing the main development needs of Ethiopia, and how well did it adapt over the evaluation period to respond to changing priorities, evolving country context, and learning from experience?
2. How relevant and effective was Bank Group support in helping Ethiopia transition away from a state-led development model to one with a greater role for the private sector?
3. To what extent did the Bank Group help Ethiopia build resilience to climate change, particularly with respect to its support to agriculture and land and water management?

The evaluation uses a theory-driven approach with a mixed methods design to triangulate findings from multiple evidence sources. Two criteria apply to all three evaluation questions: (i) the adaptive relevance of the World Bank’s engagement, considering long-term challenges, shocks, and changing circumstances, and (ii) the coherence of the World Bank’s activities, including coordination with development partners. For evaluation questions 2 and 3, the CPE assesses effectiveness by tracing the Bank Group’s contributions to identified country outcomes through the most plausible direct or indirect pathways. IEG developed theory of change processes for evaluation questions 2 and 3 (see tables B.2 and B.3) to test whether the Bank Group’s analytic work informed project selection and design, aligned with the country’s main development challenges, and informed strategy and engagement with the government and other development partners. IEG also assessed whether strategy and project implementation adapted to changing circumstances and whether the delivery of project outputs likely contributed to changes in country outcomes. The CPE’s methodological approaches for answering the three evaluation questions included reviewing existing evaluative and analytic evidence; examining internal and external indicators and data sets, including analytic work performed by project teams; conducting portfolio reviews and analyses; conducting semistructured interviews; and visiting project sites. The evaluation team members were unable to travel outside Addis Ababa because of security-related restrictions.