Financing Ethiopia’s Development

Abstract

In recent years Ethiopia has captured headlines for the impressive social and economic progress and for government commitment to and ownership of the development process. Domestic and external resources have been mobilized and channelled to the priority projects identified in the Growth and Transformation Plan (GTP). Despite these efforts, the gap between domestic saving and investment has been growing, requiring additional resources to finance the resource gap. Foreign resources play an important role in financing investment in Ethiopia, creating dependence on unpredictable financing, and this chapter underlines three points: (a) the strategic significance of mobilizing domestic resources to finance essential public services and investment programmes; (b) the need to explore new financing instruments to finance strategically defined investment programmes; and (c) the need to continue industrialization and diversification, and increase export earnings to resolve the foreign exchange constraint threatening to derail Ethiopia’s desire to become a middle-income country by 2025.