Oromian Economics

26/11/2025

Falling imports and the overvaluation of the Birr

Another major economic shift is the decline in the ratio of imports to GDP, which led to an almost one-for-one decline in the ratio of import tax revenues to GDP. The decline in imports is partly linked to lower public sector investment: a large share of Ethiopia’s imports during the investment boom were capital goods used in infrastructure projects.

The overvaluation of the Birr also contributed to the decline in the ratio of import tax revenues to GDP, especially from 2021 onwards. It did this by depressing the value of imports and hence import taxes in Birr, relative to the value of domestically produced goods and services that make up GDP. Defending the overvalued Birr also required rationing the use of foreign currencies and hence imports, further reducing import tax revenues. Ethiopia’s 2024 currency devaluation (announced after our report was substantively complete) has started to reverse the decline in import tax revenues: real-terms customs duty revenues in the nine months from July 2024 were double those recorded in the nine months from July 2023.

Other potential factors

The report also considers the role of several other factors in explaining the fall in Ethiopia’s tax-to-GDP ratio.

Recent changes in tax policy do not appear to have contributed significantly to the fall in tax revenues. There were no major revenue-reducing policy reforms during this period. High profile VAT exemptions on selected food items brought in to address cost-of-living pressures are estimated to have cost less than 0.1% of GDP. Some long-standing choices, such as not collecting VAT and excises on fuel, help explain why Ethiopia’s tax-to-GDP ratio is lower than in many other comparable countries, but not the recent decline.

26/11/2025

The role of the public sector in tax collection

Much of the answer lies in the changing structure of Ethiopia’s economy, and the interaction of this with Ethiopia’s revenue collection system and tax structure.

Ethiopia’s high rate of economic growth in the early-to-mid-2010s was driven by investment. Especially important was state-backed investment in projects such as the Grand Ethiopian Renaissance Dam and the Addis–Djibouti railway, as well as road, energy, irrigation and housing development projects. This investment boom has now largely come to an end. Investment as a share of GDP fell from 37% in 2015/16 to 22% in 2022/23, of which investment by the government and state-owned enterprises fell from 14% to 7% (in 2021/22), according to data from the World Bank.

Some of this investment flowed back into the government’s coffers in the form of higher tax revenues. VAT withholding was an important channel: all public sector entities in Ethiopia are required to withhold VAT on their purchases, effectively ensuring compliance among suppliers to the public sector. As public sector investment decreased, VAT compliance gaps widened – particularly in sectors like construction that were heavily reliant on public contracts. A major contributor to the decline in corporate income tax revenues was the decline in profitability of the state-owned Commercial Bank of Ethiopia, which was heavily involved in financing public sector investment. The decline in public sector spending relative to GDP also explains much of the fall in personal income tax revenues, given the relatively large share of PIT revenues paid by public sector workers. This fall would have been steeper had personal income tax thresholds not been frozen in nominal terms.

26/11/2025

Understanding Ethiopia’s low and falling tax-to-GDP ratio: key findings and lessons for other countries

Published: Aug. 15, 2025

Vedanth Nair, David Phillips, Edris Seid, Ben Waltmann and Mulay Weldu Asegegehn.

The tax-to-GDP ratio of Ethiopia is low and has been persistently falling for more than a decade. This contrasts with the usual trend of a rising tax-to-GDP ratio as countries grow richer. Expanding formal sectors and increasing administrative capacity should, in theory, raise the fraction of national income that is collected in taxation. However, some countries with robust GDP growth have experienced falling tax-to-GDP ratios, such as Kenya, Rwanda and Indonesia. This trend has been particularly pronounced in Ethiopia.

This unusual trend should be analysed and reversed by addressing policy and administration gaps. The Ethiopian Ministry of Finance’s Tax Policy Department in collaboration with TaxDev have conducted a detailed analysis of Ethiopia’s tax-to-GDP ratio potential, the factors behind Ethiopia’s low tax-to-GDP ratio, and the factors behind the fall. The full report can be found here.

Between 2014/15 and 2022/23, Ethiopia’s tax-to-GDP ratio fell from 12.4% to just 7.5%, despite average annual GDP growth of 8%. The decline in the tax-to-GDP ratio has run counter to government and IMF forecasts, as shown by the graph below. The largest contributors to the decline were VAT, which declined by 2.4 percentage points of GDP, followed by trade taxes (1.1pp), corporate income tax (0.7 pp) and employment income taxes (0.3pp).

18/05/2025

Cities in developing nations, such as Addis Ababa, deal with concomitant urban population growth and rising private vehicle ownership. These factors, along with resource limitations, make it difficult for residents to move around the city (Henning et al., Citation2011; Norouzian-Maleki et al., Citation2022). Furthermore, the majority of cities in the developing world are experiencing strain on their urban mobility due to the recent significant increase in private vehicles. The increase in personal vehicle use, as noted by Greene and Wegener (Citation1997), exacerbated the issues of air pollution, traffic noise, and congestion because there was insufficient transportation infrastructure. In general, it reduces the effectiveness of transit service organizations and urban mobility in the metropolis.

Based on this, the government should implement several policies to improve urban mobility and make the city a more liveable place, including parking fees, congestion pricing, traffic calming, etc. To reduce traffic and improve the general quality of life for city people, governments and municipal administrations must prioritize sustainable transportation solutions. By taking these steps, cities may look and feel better, reduce traffic, and make public transportation easier to use. Authorities in such cities should move quickly to create and implement a range of solutions for their urban transportation networks in light of the challenges they face.

05/07/2024

A second and less radical international-dependence approach to development,which we might call the false-paradigm model, attributes underdevelopmentto faulty and inappropriate advice provided by well-meaning but often uninformed, biased, and ethnocentric international “expert” advisers from developed-country assistance agencies and multinational donor organizations. These experts are said to offer complex but ultimately misleading models of development that often lead to inappropriate or incorrect policies....

A second and less radical international-dependence approach to development,which we might call the false-paradigm model, attributes underdevelopmentto faulty and inappropriate advice provided by we…

12/06/2024

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12/04/2024

12/04/2024

The annual inflation rate in Ethiopia eased for a third consecutive month to 29.3% in June of 2023, the lowest reading since July of 2021, compared to 30.8% in May, as prices slowed for almost all components.

24/12/2023

MAKING THE TRANSITION TO INTENTIONAL GROWTH
Ask the Big Questions Now

1. Where do you want to go in life?
2. What direction do you want to go?
3. What’s the farthest you can imagine going?
4. How long will this take?

Not having all the answers to these questions immediately is normal. But ASK them and
keep exploring them daily!

24/12/2023

To discover your own purpose and potential, you need to grow in the following
areas:
1. Self-awareness
2. Character
3. Skills
4. Relationships
5. Spiritually

24/12/2023

To grow yourself, you must know the following:
1. Your Strengths
2. Your Weaknesses
3. Your Interests
4. Your Opportunities