This Country Program Evaluation 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 expected in FY26. The evaluation covers two Bank Group strategies and two government administrations, divided into three periods: the first period, from FY13 to FY18, witnessed high economic growth with increasing macroeconomic imbalances, while political unrest gradually increased; the second period, from FY19 to FY20, was characterized by government-led openness to economic reforms; and the third period of conflict and economic crises, from FY21 to FY23, disrupted this openness to economic reforms.

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 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.

Context

Ethiopia experienced high growth in the early part of the evaluation period, but macroeconomic imbalances increased. Ethiopia’s economic model included maintaining real negative interest rates, using monetary financing for fiscal deficits, and directing credit and foreign exchange to state-owned enterprises (SOEs), which often oversaw large capital investments. An overvalued exchange rate helped reduce the cost of capital imports but posed challenges for external competitiveness and domestic resource allocation. While this approach initially contributed to strong economic growth and poverty reduction, macroeconomic imbalances emerged and created challenges for private sector development—specifically, inflation rose, private investment and external competitiveness weakened, and fiscal and external buffers were reduced. Ethiopia’s risk of external debt distress increased from low in 2011 to high risk by 2017 because of continued nonconcessional borrowing (World Bank and IMF 2019), notably by SOEs; a deterioration in export-related indicators; and shocks, including drought and increasing political uncertainty.

After a political change in 2018, the new government announced reforms as part of its Homegrown Economic Reform Agenda. These reforms aimed to address macrofinancial and macrofiscal stability, enhance the role of the private sector, and unlock growth in specific sectors, including agriculture and manufacturing. The authorities announced policies aimed at both strengthening the role of the private sector in driving growth and restoring public finances, including by encouraging foreign direct investment and public-private partnerships to partially privatize key SOEs. However, the COVID-19 pandemic, outbreak of the Tigray conflict, and ensuing economic crises, including price shocks due to Russia’s invasion of Ukraine, slowed the reform momentum.

Ethiopia witnessed increasing political unrest, multiple armed conflicts, and shocks after 2020 that affected Bank Group engagement. Most notable, the two-year Tigray conflict, from November 2020 to November 2022,1 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 (IDMC 2025). High-intensity conflict ended in late 2022, but fighting continued in Amhara and Oromia, Ethiopia’s most populous regions. As a result, Ethiopia’s rankings on peace and fragility indexes fell over the evaluation period, and in FY22, Ethiopia was added to the Bank Group’s list of fragile and conflict-affected situations. Ethiopia experienced several shocks, including the beginning of the COVID-19 pandemic and locust infestations (figure O.1). This period also included an economic crisis, with growth slowing, inflation climbing to more than 20 percent, and foreign exchange shortages worsening until the country missed a Eurobond interest payment in December 2023, when Ethiopia was declared to be in debt distress.

Economic crisis and increasing conflict contributed to the reversal of some notable gains in human capital development and poverty eradication. From 2016 to 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 between 2014 and 2019 to about 20 percent between 2021 and 2023 (FAO 2024). Human capital indicators followed similar trends, as governance indicators worsened on government effectiveness and the rule of law.2

Figure O.1. Timeline of Selected Events in Ethiopia and International Development Association New and Total Commitments by Fiscal Year

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Figure O.1. Timeline of Selected Events in Ethiopia and International Development Association New and Total Commitments by Fiscal Year

Source: Independent Evaluation Group.

Note: CPF = Country Partnership Framework; CPS = Country Partnership Strategy; DPF = development policy financing; FCS = fragile and conflict-affected situations; IPF = investment project financing; PforR = Program-for-Results.

Evolution of the World Bank Group’s Engagement in Ethiopia

The Bank Group adapted to a context marked by significant changes and challenges, including a policy reform environment in flux, the COVID-19 pandemic, a worsening economic crisis, and conflict. The Bank Group carefully nurtured a relationship with the government in the early period despite differing diagnoses of the increasing macroeconomic imbalances. The Bank Group adopted a pragmatic approach to these challenges by collaborating with the government on mutually agreeable areas but was less effective in developing the engagement and mitigating risks to the program in critical macroeconomic and private sector areas, for which consensus on the diagnosis of the problems and potential reforms could not be reached. When a policy opening in these areas appeared in 2018, the Bank Group quickly prepared a budget support program to bolster the government’s reforms. This reform period was interrupted shortly after it began, as political uncertainty rose, and the World Bank then shifted to provide emergency COVID-19 and crisis support and increasing project disbursements, thereby demonstrating flexibility and agility. This shift contrasted with some other development partners that reduced funding. The Bank Group’s engagement helped the country avert a deeper economic crisis, preventing higher levels of poverty and food insecurity. The Bank Group’s efforts and widely recognized relevance during this unprecedented time highlight its adaptability over a very volatile period.

The Bank Group was a leading convener of technical and sector-level working groups within the development community during the evaluation period. The Bank Group is Ethiopia’s biggest development partner according to Organisation for Economic Co-operation and Development data, and its importance has increased in line with its growing lending program. The Bank Group was heavily involved in technical and sector-level working groups, successfully attracting cofinancing for various sectors. Interviews indicate that development partners appreciated the Bank Group’s convening role, although some would have welcomed stronger strategic leadership on critical program-level issues. However, the same interviews also confirmed that since the Tigray conflict began in 2020, many development partners shifted their financial support strategies in divergent directions, making it harder to convene partners around development issues.

The Bank Group’s financing to Ethiopia nearly doubled over the evaluation period, with limited strategic adjustments, despite escalating conflict and rising macroeconomic imbalances. Between FY13 and FY17, the International Development Association committed $7.2 billion in funding. Commitments rose to $13.2 billion between FY18 and FY23, totaling $20.3 billion over the evaluation period. However, conflict and worsening macroeconomic imbalances and debt increased risks for the World Bank’s portfolio and weakened conditions for project preparation, implementation, and monitoring. The conflict limited access to project sites for both the World Bank and the government. The Bank Group did not initially formally adjust its strategy but paused project implementation in conflict areas and tried to adopt third-party implementation and monitoring, which only partially materialized. The Bank Group did not have a formal strategy in place in FY17 and again in FY23 after the respective strategies expired. The World Bank maintained high disbursement levels through investment project financing and Program-for-Results (PforR), partially through additional financing and reliance on government implementation and monitoring. More than half of new approvals in FY23 were for PforR, at the height of foreign exchange parallel market premiums and while the risk of debt sustainability was high, raising challenges for the required assessment of the PforR’s impact on the fiscal outlook and program sustainability.

A large and increasing reliance on additional financing meant that the Bank Group quickly extended interventions with limited adjustments. The share of additional financing grew from 19 percent of newly approved projects during 2013–17 to 30 percent during 2018–23. This financing quickly provided critical resources to the government during COVID-19 and the period of economic crisis, including for continued social protection in non-conflict-affected areas, but it limited opportunities for reflection and strategic corrections.

The Bank Group took a collaborative approach over the evaluation period, prioritizing areas of mutual agreement while avoiding potentially contentious topics. Bank Group analytics and strategies, as well as those from other development partners and other reviewers, highlighted risks stemming from government growth policies. The Bank Group diagnostics sometimes shied away from directly advocating for a change to government policies that diagnostics indicated were inconsistent with macroeconomic stability and private sector growth. As the conflict intensified and the economic crisis worsened later in the evaluation period, the Bank Group lowered its public profile, including discontinuing its regular macroeconomic updates, which were considered important avenues to contribute to internal and external policy debates. While some interviewees expressed that the World Bank could have been more proactive in raising policy disagreements with the government and other stakeholders, others supported the World Bank’s approach and considered that a more direct or confrontational approach would not have been effective in influencing government policies. For example, the World Bank was only partially successful in influencing Ethiopia’s nonconcessional borrowing through its various policies and technical engagements or by eventually converting the grant portion of Ethiopia’s performance-based allocation to credits (see box 3.1).

The World Bank Group’s Efforts to Expand Ethiopia’s Private Sector

The Bank Group quickly engaged when opportunities to support private sector reforms emerged; however, the short reform period was interrupted by the COVID-19 pandemic, conflict, and economic crisis. The private sector’s involvement in Ethiopia’s economy is limited. In 2012, private companies contributed just 2.7 percent to GDP and employed just 5.8 percent of the workforce (World Bank 2012a). At the start of the evaluation period, Ethiopia ranked 121st out of 141 countries in the World Economic Forum’s Global Competitiveness Index (WEF 2012). Early in the evaluation period, the government strategy prioritized a debt-fueled, state-led approach to economic development, while Bank Group reports recommended gradually moving toward a greater role for the private sector to sustain high growth (World Bank 2015a). After a new government signaled more openness to private sector participation in the economy in 2018, the Bank Group quickly developed the $1.95 billion Ethiopia Growth and Competitiveness programmatic development policy financing series to support broad structural reforms with notable successes (for example, introducing private competition into the telecommunications sector). However, the brief reform momentum was interrupted by the COVID-19 pandemic and a period of conflict and economic crisis. As such, key macroeconomic constraints remained, such as an overvalued exchange rate, a relatively large debt overhang, and directed credit, while policy reversals, such as the reintroduction of a rule that required commercial banks to allocate a share of their lending to the purchase of treasury bills, undermined some critical reforms. Nonetheless, these efforts laid the foundation for future reforms—including the exchange rate liberalization that occurred in July 2024 in the context of the new World Bank development policy financing and an International Monetary Fund program—and their impact will rely on sustained efforts to address macroeconomic imbalances, decrease the dominance of SOEs in the economy, and reduce financial sector repression.

Enabling the Private Sector

The Bank Group adapted its engagement during the evaluation period to help improve the business environment and conditions for trade, but effectiveness has been limited in a less conducive reform environment. At the start of the evaluation period, the World Bank supported analytics and study tours to inform government policy makers, based on the experience of peer countries in gradually shifting toward more balanced market-based systems, while the International Finance Corporation (IFC) supported improvements to business regulation and taxation. During the period of reform, the World Bank’s Ethiopia Growth and Competitiveness development policy operation series and IFC’s advisory work helped Ethiopia improve its business climate, but the short reform period was quickly interrupted by the ensuing period of conflict and economic crisis. The Bank Group’s support to improve Ethiopia’s conditions for trade exceeded targets but experienced delays because of the conflict and a deteriorating macroeconomic context.

The Bank Group’s support for the financial sector adapted to constraints limiting the ability to expand private sector solutions. During the early part of the evaluation period, the World Bank supported financial sector standards, such as a microfinance framework, while IFC engaged in complementary advisory projects to improve financial infrastructure and introduce new products, such as leasing and agrifinance. In the absence of the liberalization of the financial sector, the World Bank’s interventions supporting financing for micro, small, and medium enterprises were operationally successful, but they worked through the state-dominated banking sector, which limited the potential for replication and scale-up.

Ethiopia’s reengagement in reform efforts since the end of the evaluation period has taken steps toward addressing some of the key constraints that limited the effectiveness of the Bank Group program. The country’s engagement with the International Monetary Fund and the World Bank has facilitated exchange rate liberalization and enabled it to make progress on debt restructuring negotiations. The removal of constraints to financial sector development is in progress, with the opportunity to increase the effectiveness of Bank Group support in enabling the private sector.

Supporting Productive Sectors

The Bank Group’s support for the government’s efforts to promote manufacturing by building industrial parks early in the evaluation period did not lead to transformational change. Promoting light manufacturing was a shared priority between the government and the Bank Group’s strategies early in the evaluation period when economic reform appetite was low. The objective of this agenda was to increase jobs, economic growth, and export competitiveness. The World Bank considered promoting light manufacturing—especially via the development of industrial parks, wherein the private sector was encouraged to flourish within defined enclaves—as an option when wider economic reforms were unattainable. These parks yielded positive results in attracting investments and increasing sales but did not have a transformational impact absorbing an appreciable share of new entrants in the labor force or helping significantly increase the country’s exports. Project documents recognized and sought to mitigate these risks, but they could not be overcome as anticipated because of the worsening of macroeconomic imbalances.

The World Bank’s agricultural support contributed to the country’s rapid productivity improvements, but the lack of broader economic reforms constrained commercial agriculture. The World Bank’s support to enhance agricultural productivity aligned with government priorities to improve rural livelihoods and boost exports and achieved notable successes. For example, the World Bank–supported Agricultural Growth Program exceeded output targets, increasing crop yields by 17 percent during the evaluation period. These efforts and others contributed to national cereal productivity growing by 3.7 percent annually, although production growth has not kept pace with rising domestic demand. IFC provided relevant advisory and investment support that was more successful in the later part of the evaluation period. However, in the absence of economic reforms of the state’s role in the sector, the continued prevalence of small-scale farms, and an overvalued exchange rate, an agriculture sector that could significantly increase agriculture exports did not emerge.

The World Bank’s Efforts to Build Ethiopia’s Climate Resilience

The Bank Group’s strategies supported the government’s commitment to climate resilience in three areas: sustainable land management, agriculture practices, and safety nets. Ethiopia has made strong global commitments to climate adaptation and resilience policies and strategies. The World Bank supported the implementation of these policies and strategies with technical assistance and analytic work that helped, for example, shape Ethiopia’s climate adaptation efforts. Ethiopia’s vulnerability to climate change affects the country’s large agriculture sector, puts pressure on land, and threatens large part of the population with food insecurity. Farmers are among the most exposed to climate change. Sustainable land management reduces land degradation and increases land productivity in the face of severe droughts, whereas improving agricultural practices helps farmers adapt to changing climate conditions. The country’s national safety net aimed to reduce reliance on emergency food aid during times of climate crises, offering, for example, public works programs to rural Ethiopians.

The World Bank dramatically expanded the geographic area under sustainable land management in Ethiopia. World Bank projects have helped counteract land degradation by restoring watersheds and landscapes, an approach that also boosts land productivity. The World Bank contributed to more than 44,000 farming households adopting improved soil and water management practices. The projects that focused on enhanced climate resilience and improved livelihoods through better sustainable land management practices and conservation efforts have reached about 2.7 million hectares of Ethiopia’s estimated 27 million hectares of degraded land. World Bank projects have also issued land certificates to more than 4.7 million Ethiopian farmers, providing them with the legal standing and long-term security they need to invest in sustainable land management practices and climate resilience (Adamie 2021).

The World Bank’s agricultural investments improved climate resilience, but the focus on small-scale irrigation projects prevented the notable expansion of irrigated land. Irrigation has been a long-standing priority for the government and the Bank Group in Ethiopia, and it was featured in all strategies and development plans during the evaluation period. Early in the evaluation period, the World Bank implemented a larger-scale irrigation project, but the complexity of the project and limited counterpart capacity led to delays, cost overruns, inadequate supervision, safeguard challenges, and ineffective monitoring and evaluation (World Bank 2019b). This outcome prompted the World Bank to focus more exclusively on smaller-scale projects. However, these small-scale irrigation projects lacked the scale to make a sizable difference in Ethiopia’s total irrigated land.

The World Bank’s support for social safety nets moderately improved food security and climate resilience but faced sustainability challenges. The Bank Group has convened partner funding to support Ethiopia’s Productive Safety Net Program (PSNP) for nearly two decades. The PSNP provided relevant and diverse services to Ethiopians facing food insecurity, especially during climate crises. A 2021 review of the program found that the PSNP serves an average of 8 million people in 300 food-insecure woredas (districts). The PSNP did particularly well in targeting poor and food-insecure populations. However, fragmented institutional arrangements continue to hamper implementation. The program did not initially adapt as well to non-climate-related shocks, such as the conflict in Tigray, which caused disruptions in service for beneficiaries in affected areas, an inability of displaced people to access services, and limited success in the use of third-party implementation. Funding shortages resulting from the withdrawal of development partners also meant that the program could not expand or meet humanitarian needs caused by armed conflicts (World Bank 2024e). More important, the PSNP was meant to provide a sustainable alternative to emergency food aid but relied primarily on external funding during the evaluation period and was unable to graduate beneficiaries from the program (IFPRI and IDS 2022). The Independent Evaluation Group notes that in November 2024, after the evaluation period and a period of debt distress and reforms to address macroeconomic imbalances, the government approved a supplemental budget that makes funding less dependent on development partner resources but also depends on the government’s ability to mobilize more tax revenues (IMF 2025).

Lessons for Consideration

This evaluation identified the following lessons to guide future Bank Group engagement in Ethiopia. These lessons may also be relevant to other countries facing similar development challenges:

1. At times, the World Bank traded candor on transformational reforms with remaining engaged in Ethiopia’s policy dialogue. The World Bank’s impact hinges on its ability to find ways to frame policies on sensitive topics in a manner that is palatable to government decision makers, the public, and potential coalitions for change. However, on some potentially transformational reforms, the World Bank avoided public discussion—for example, by discontinuing Economic Updates and reducing the visibility of other economic analyses as a platform to engage authorities and other potential stakeholders on sensitive reforms such as liberalizing the agriculture sector, fiscal consolidation to reduce debt, and addressing an overvalued exchange rate and financial repression to reshape the development model. This approach enabled the dialogue to continue in other areas (such as around climate resilience in sustainable land management, agriculture practices, and safety nets), but at the cost of addressing some fundamentally transformative reforms to support the private sector and address growing macroeconomic imbalances. While some difficult policy dialogue may need to continue behind closed doors, the World Bank should seek to balance this discussion with contributing to an open policy discourse and by active risk management, notably around critical economic reforms, for which delaying reforms may be more costly in the long term. Without such discourse, the Bank Group’s efforts to support improvements in areas such as the business environment or strengthening institutions may not have the desired impact.
2. Conducting regular strategy and program reviews and actively managing risks can create opportunities for strategic corrections and adaptation, particularly during times of portfolio expansion and emerging economic challenges and conflict. Specifically, repeated use of additional financing and the absence of a timely Performance and Learning Review risked potentially supporting unsustainable policies, extending the same interventions with minimal adaptation, and having fewer opportunities for learning and course correction.
3. Adapting the implementation of the Bank Group’s program to emerging conflict and fragility is a complex multiyear process that needs sufficient and timely monitoring and evaluation. The Bank Group’s program should be guided by well-developed and candid assessments of the potential development impacts and risks. The Bank Group should ensure that adequate monitoring and evaluation systems continue to be in place so that support for government-driven priorities remains consistent with, and can adapt to, the Bank Group’s mission of reaching targeted populations with the greatest development needs. This lesson is highlighted by the limited success in the use of third-party monitoring and implementation.
4. The Bank Group needs to consider how its interventions help address and interact with macroeconomic imbalances, including exchange rate misalignment, financial repression, and sustainable debt levels. The choice of World Bank financing instruments should consider their consistency and sustainability in the face of such macroeconomic imbalances. For example, several development policy operations were approved despite backloading foreign exchange reforms. Additionally, while PforR operations gained traction and were particularly successful in supporting social programs, there could have been a more candid assessment of how the fiscal context and macroeconomic outlook undermined the sustainability of the program until broader imbalances were addressed.